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Saga plc
Annual Report and Accounts for the year ending 31 January 2017
Welcome to Saga plc’s
annual report and accounts
Saga exists to help our customers lead the life they want to live.
In order to succeed in this, we know that the most important thing to do
is to listen to our customers. By doing this we can truly understand them
and provide the services they need to live the lives they want to live.
This simple approach over the last six and a half decades has enabled us to become
the leading provider of products and services to people aged 50 and over in the UK.
In this annual report, we demonstrate the progress we have made this year
in continuing to grow our understanding of our customers to meet their
developing needs and maintain our leading position.
We believe that by continuing to put our customers at the heart of everything
we do, we will grow Saga and deliver long-term value for our shareholders.
Strategic report
01 Financial highlights
02 Our business at a glance
04 Chairman’s statement
06 Group Chief Executive Officer’s
strategic review
10 Our business model
11 Our target market overview
12 Our strategy at a glance
14 Delivering our priorities
16 Our resources and relationships
20 Our principal risks and uncertainties
24 Divisional review
30 Group Chief Financial Officer’s
review
Governance
40 Corporate governance statement
40 Chairman’s statement
42 Compliance statement
45 Leadership
48 Board of Directors
50 Effectiveness
52 Nomination Committee report
54 Accountability
58 Audit Committee report
62 Risk Committee report
66 Relations with shareholders
67 Directors’ remuneration report
67 Annual statement
70 At a glance
72 Directors’ remuneration policy
82 Annual report on remuneration
90 Directors’ report
95 Independent auditor’s report
Financial statements
102 Consolidated income statement
103 Consolidated statement of
comprehensive income
104 Consolidated statement
of financial position
105 Consolidated statement
of changes in equity
106 Consolidated statement
of cash flows
107 Notes to the consolidated
financial statements
166 Company financial statements
168 Notes to the Company financial
statements
Additional information
171 Shareholder information
172 Glossary
Strategic report
Financial highlights
We’ve continued
to deliver on our
financial objectives
of earnings and
dividend growth
A renewed focus on
our customers’ journey
allows us to understand
their needs to improve
their lives day to day.
See what we’ve learnt
p07
Profit before tax (£m)
Underlying profit before tax1 (£m)
Basic earnings per share2 (pence)
9.7%
3
.
3
9
1
.
2
6
7
1
.
8
3
1
1
15
16
17
200
160
120
80
40
0
5.6%
4
.
7
8
1
4
.
7
7
1
8
.
3
6
1
15
16
17
200
160
120
80
40
0
6.0%
.
1
4
1
.
3
3
1
6
.
8
15
16
17
16
12
8
4
0
Dividend per share (pence)
Available operating cash flow (£m)
Debt ratio (net debt to EBITDA)
18.1%
10
8
6
4
2
0
5
8
.
2
7
.
1
4
.
15
16
17
22.2%
250
200
150
100
50
0
.
6
7
1
2
.
1
8
7
1
.
0
3
6
1
15
16
17
High-affinity customers (‘HACs’)
Product holding per HAC
483k
2.1 core
products
17.6%
4
3
2
1
0
1
.
3
5
.
2
3
2
.
9
.
1
IPO
15
16
17
1 Profit before tax excluding derivatives and Ogden impact.
2 From continuing operations.
1
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Our business at a glance
Saga provides a variety of market leading
products and services to the UK’s over 50s
Operations
• Retail broking
• Underwriting
To find out
more go to
p24-26
Our insurance business
is the largest part of the
Group, providing award
winning tailored products
and services, ranging from
motor to pet insurance,
to millions of customers
each year.
Our award winning travel
business is at the heart
of the Saga brand, taking
passengers all over the
world on package holidays,
escorted tours and cruises.
Operations
• Saga Cruises
• Saga Holidays
• Titan
• Destinology
To find out
more go to
p27
Emerging businesses
include our personal finance,
homecare, publishing and
printing operations as well
as new development areas
for the long-term growth
of the business.
Operations
• Saga Money
• Saga Healthcare
• Saga Retirement
Villages
• Saga Publishing
• MetroMail
To find out
more go to
p29
Insurance
Travel
Emerging businesses
2
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Saga as an investment
Saga aims to deliver consistent long-term earnings
growth with the right balance between investing
for growth, paying down debt and returns
to shareholders via dividends
Why invest in us?
The model works
The Group has an excellent track
record of delivering consistent earnings
growth. The capital efficiency of the
model means that we are highly cash
generative. This enables us to invest for
future growth, whilst continuing to pay
down debt and enhance long-term
returns to shareholders through our
progressive dividend policy.
How we are different
Saga focuses on the over 50s, the
fastest growing demographic in the
UK. This demographic tends to be
wealthier and more resilient during
times of economic uncertainty. Our
customer insight allows us to gain
unique insight into the traits of
our target demographic, helping us
to develop products and services
that we know will be valuable to our
customers. We operate across sectors
which provide services that people
need. This means that demand for
our products and services remains
consistent amongst a customer
base that predominantly spends
unearned income.
Confidence in future delivery
Our existing strategy is robust. The
in-depth work we have undertaken
to deepen our understanding of our
customers has provided the logical
next step in the evolution of our model.
We are now in a position to use our
enhanced insight and data capability
through a membership structure to
become a more efficient organisation,
ensuring that we:
• retain and deepen our customer
relationships;
• increase new customer targeting; and
• generate increased profits at lower
risk, with lower capital.
This strategic evolution increases our
confidence in our ability to generate
consistent long-term earnings growth
on a sustainable basis.
...to deliver profit and dividend
growth, strong cash generation
and sustainable shareholder return.
3
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Chairman’s statement
Evolution of the strategy and
further financial delivery leading
to enhanced shareholder returns
I am delighted to present another strong
set of results.
We have continued to deliver on our
progressive dividend policy this year,
increasing our dividend by 18.1% to 8.5p.
This equates to a payout ratio of 62%1 of
net earnings, compared to 57%2 in the
previous year. Last year, we increased
our target payout range from 40%-60%,
to 50%-70% as a sign of our confidence
that we will continue to deliver strong
financial performance. This year’s
decision to increase the dividend
again reflects the Board’s ongoing
confidence in the sustainability of our
dividend policy, which is supported by
a strong track record of profit growth
and cash generation through our
capital efficient model.
Financially, we have again delivered
growth in underlying profit before tax
of 5.6% to £187.4m and basic earnings
per share by 6.0% to 14.1p. Furthermore,
we have continued to be highly cash
generative, resulting in a further
deleveraging such that our net debt to
EBITDA ratio has reduced to 1.9 times.
Our focus on customer need has been
the driving force behind the growth of
the business. Our customers remain at
the heart of everything we do and it is
a great credit to the Company that so
many continue to support us through
sustained ownership of our shares.
The management team has done a lot
of work throughout the year to deepen
our understanding of our customers.
This is helping us to interact differently
and more efficiently with both existing
and prospective customers.
1 Based on profit after tax excluding derivatives
and Ogden impact.
2 Excluding the one-off benefit of Acromas
tax losses.
Our focus on customer needs
has been the driving force behind
the growth of the business. They
remain at the heart of everything
we do.
4
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC I would like to thank all of our
shareholders, both institutional and
retail, for their ongoing support and to
welcome those who have joined us
during the year, including the many new
institutional investors on our register.
I would also like to thank our employees.
Their dedication to customer care and
innovation enable us to deliver the
exacting standards our customers
value so highly.
The Saga Board is a strong group of
individuals who have brought relevant
and valuable experience and skills to
bear in shaping Saga’s thinking and
strategy. We continue to be confident
in Saga’s ability to deliver long-term
sustainable returns for our shareholders
by delivering consistent profitable growth
with a capital efficient model.
Our Group Chief Executive, Lance
Batchelor, continues to effectively
deliver on the execution of our strategy.
Lance leads a strong Executive Team
which comprises a mix of new hires
and established staff. Their energy,
commitment and focus on key strategic
deliverables throughout the year have
had a marked impact on our results.
Andrew Goodsell
Chairman
28 March 2017
Our governance supports
our strategic priorities
Governance highlights
Our governance structure is now
embedded within the Group to
support growth.
• Our processes ensure good
stewardship as we invest for future
growth, whilst continuing to pay
down debt and enhance long-term
returns to shareholders through our
progressive dividend policy.
• All resolutions proposed at our AGM
were passed with a significant
majority and all directors standing for
re-election or election were
appointed.
• We comply with the Corporate
Governance Code 2016 (the ‘Code’)
recommendation that half of
the Board are independent
Non-Executive Directors.
• We conducted our first externally
facilitated Board and Committee
evaluation exercise and agreed
action plans to focus on areas
of development.
p40
5
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Group Chief Executive Officer’s strategic review
I am very pleased that we have again
delivered consistent profit growth in line
with our stated targets. We have
achieved this alongside some important
strategic developments, particularly the
work we have done to enhance our
understanding of our customers and to
develop our vision for building future
value by improving our customers’
experience.
Same clear strategy
We have continued to deliver on the
clear strategy for sustainable earnings
growth that we laid out in early 2015.
This strategy has remained consistent
and is focused on:
1. Becoming increasingly customer-
centric.
2. Growing profits in our insurance
and travel businesses.
3. Investing for future growth.
4. Maintaining our efficient
operating model.
5. Developing our people.
Customer work
Our growing understanding of our
customers has provided us with a unique
opportunity to use our rich proprietary
data to interact with them more efficiently
to better understand what they want,
and to deliver it right across the
business. We are also able to identify
customers who are more likely to have
an affinity with the brand over time, and
to use our marketing resources more
effectively by targeting and rewarding
those customers who are, or have
the propensity to be higher-affinity
customers (‘HAC’).
Our performance has continued
to prove the strength of the Saga
business model, which builds
multi-decade relationships with
our target demographic through
a range of excellent products
and services.
6
1 Profit before tax excluding derivatives
and Ogden impact.
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Through this work, we have identified
a core group of c.500k HACs that form
around 20% of our customer base,
and have contributed around 80% of
customer value over the last three
years. This group has the following
key characteristics, all of which deliver
greater lifetime value to Saga. They:
• buy premium versions of what we sell;
• have higher retention levels; and
• have a higher propensity to buy
multiple products across the Group,
holding an average of 2.1 core
products each.
We now fully understand the journeys
by which these customers have
developed a high affinity for Saga and
the reasons why certain customers have
not. This means that we are now in a
position to improve the efficiency and
effectiveness of our direct marketing
model to better identify and target
existing or potential HACs.
Historically, we have managed a highly
effective product marketing approach,
evidenced by industry leading customer
acquisition costs in insurance. This
marketing was based on average
returns. By looking at it from the
viewpoint of customer affinity, rather than
by value of product, we can significantly
refine this model to increase efficiency.
Just as importantly, we have been able
to identify customers who have an
affinity with the brand but who currently
have neither the long tenure nor multiple
product holdings. By considering their
purchasing propensities, we can ensure
that we approach and market to them
in a way that optimises the likelihood of
them developing an affinity with Saga.
So,
what’s
next?
Strategic priorities for the coming year
In order to continue to deliver the
consistent financial performance that
we have demonstrated as a public
company, and ensure future long-term
value for shareholders, our strategic
priorities for the coming year are:
1 Becoming increasingly
customer-centric
p14
2 Growing profits in our retail
insurance and travel businesses
p14
3 Investing for future growth
p15
4 Maintaining our efficient
operating model
p15
5 Developing our people
p15
7
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Strategic report
Group Chief Executive Officer’s strategic review continued
We have made a key improvement to
our systems capability which will enable
us to do this. In our core insurance
and travel businesses, we have two
excellent acquisition machines, whose
demographic focus means we are
constantly ‘touching’ current and new,
potentially high-affinity, customers.
The improved capability enables us to
monitor in real time what customers are
doing and, just as importantly, what they
have done while journeying through any
of our systems, both online and through
our call centres. It will also enable us to
automatically offer the customer the right
product based on their history and their
propensity to buy.
Membership
Saga’s brand is synonymous with life
after 50 in the UK. Thanks to the
consistent delivery of tailored products,
underpinned by exceptional service over
many decades, customers often refer
to being ‘Saga members’ without ever
having run an official membership scheme.
Utilising the customer work we will create
a membership scheme that rewards and
incentivises our customers to both stay
with Saga and deepen their relationship
with us. The scheme, which will launch
in the second half of the year, is open to
all existing Saga customers and will be
named “Saga Possibilities”. Its mission
statement is to: “Help you, our members,
get more out of Saga and do more of the
things that matter most to you”.
Saga Possibilities will be structured
around four key components:
• Experiences: provide members with a
constant stream of inspiring products
and experiences they can try.
• Expertise: the go-to place for the over
50s for subject matter and expertise,
providing information, inspiration and
insight on topics that matter most.
• Everyday: to make the little things
in life more enjoyable, easier and
better value.
• Enhanced Saga products: every
product and service that Saga sells
will have extra enhancements for
our members.
We believe that the combination of
our increasing customer insight, data
capability and membership will be
extremely powerful, helping us to focus
our efforts on rewarding, retaining and
growing our target customer base and
deepening our relationship with them.
Our goal is therefore to grow the number
of products held by HACs by 20% over
the next 5 years.
Conclusion – the Saga
investment case
With a clear strategy in place to continue
to drive profit growth through the core
businesses and enhance the value of our
most loyal customers, we have made a
positive start to the current year, and
I would like to touch again on the key
takeaways that make Saga a strong
investment case:
How we are different:
• Our focus on an older and growing
demographic
• Our strong customer relationships
and brand loyalty leads to better
customer acquisition and retention
• Multiple businesses with tailored,
differentiated offerings means the
business is less exposed and
carries less risk
The model works
• We have consistently delivered steady
earnings growth over time
• We have demonstrated another year of
strong earnings growth and cashflow
Confidence in future delivery
Our existing strategy is robust. The
in-depth work we have undertaken to
better understand our customers has
provided the logical next step in the
evolution of our model. We are now in
a position to use our enhanced insight,
data capability and membership
scheme to become a more efficient
organisation, ensuring:
• We retain and deepen our customer
relationships with:
– increased persistency
– better cross-sell
– low acquisition costs
• We improve new customer targeting
through more efficient acquisition spend
• We generate increased profits at lower
risk, with lower capital through higher
quality of earnings.
We are seeing the benefits of this work in
our current business performance. These
early signs of successful implementation
have increased our confidence that we can
continue to leverage Saga’s differentiated
model to drive increased customer
engagement and loyalty. This gives us
further confidence to deliver consistent,
sustainable earnings growth through
increased efficiency and customer value
across the business.
Lance Batchelor
Group Chief Executive Officer
28 March 2017
8
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Our Executive team
The right mix
Introducing our Executive Team (from left to right)
1. Jules Christmas
Group IT Director
2. Jeannette Linfoot
Managing Director, Tour Operations
3. Robin Shaw
Chief Executive, Saga Cruises
4. Jonathan Hill
Group Chief Financial Officer
5. Nici Audhlam-Gardiner
Managing Director, Saga Personal Finance
6. Lance Batchelor
Group Chief Executive Officer
7. Matt Atkinson
Group Chief Marketing Officer
8. Roger Ramsden
Chief Executive, Insurance Broking
9. Andrew Button
Chief Executive, AICL
10. Karen Caddick
Group HR Director
9
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Our business model
How we do it
We look to develop and enhance strong
relationships with our customers over the
course of many years. By doing this
we gain a unique insight into the traits
of our target demographic, helping us to
develop products and services that we
know will be valuable to our customers,
and helping them do more after 50.
We then either develop our offering
in-house, or use a third party supplier.
In order to choose the most effective
method, we consider several factors,
including: the route that would benefit
the customer most; whether our internal
expertise is required or if a third party
is better positioned to deliver; and the
optimal deployment of our capital.
We work across a large number of
sectors, so if we do choose to use a third
party, it is because we believe that their
ability to operate in that particular area
is best in class. When this is the case,
we design and develop the product to
our specifications, and the third party
provides it.
This is the most common approach
we take. Selecting and managing
our supplier base is a core skill of
the Group. We work with them to
ensure that the customer gets what
they want, underpinned by excellent
customer service.
When we produce products in-house, it
is because we believe that we are best
placed to offer the value and levels of
service that our customers expect.
This is especially apparent when
considering our cruise business.
Delivered through the Saga Model
Whether produced in-house or by a third party, all of our products and services
are delivered through the Saga Model, the defining aspects of which are:
1. A great brand
We have a truly unique brand that is highly trusted and recognised by over 97% of the UK’s over 50s.
This allows us to provide products that offer exceptional levels of service, across multiple categories,
at a fair price.
2. Differentiated
products
Our ability to listen to our customers, analyse their behaviour and tailor our offering accordingly,
means that we are able to offer products, services and added benefits that we know our customers
want in order to help them enjoy life after 50.
3. Unique route
to market
As a data driven business, direct access to our existing and potential customers means we can analyse
and access both current and new customers across multiple channels.
4. Outstanding
service
We compete across multiple sectors, and after buying products for many decades, our customers
know what good service looks like. They expect this from us, and recognise it when they get it.
Underpinned by our flexible capital efficient model
The nature of our multi-
business model provides
us with great flexibility,
and has allowed us to
build a strong track record
of resilience and growth.
The strength of our brand and our ability
to select the best providers, allow us to
develop new products and enter new
markets very quickly, often with very little
capital at risk.
We operate two different core
businesses, travel and insurance, that
run eight different principal product lines,
and this breadth of offering helps to
shield us against product specific risks.
This allows us to focus management
time and capital on the areas of the
business with the most potential
for growth.
This approach means we are highly
cash generative. The majority of our
profit after tax turns into cash, allowing
us the flexibility to continue to invest for
growth, whilst also paying down debt
and enhancing long-term returns to
shareholders via a progressive
dividend policy.
10
Strategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Our target market overview
We are well positioned to serve
a growing demographic
Saga is the UK’s leading provider of
products and services tailored to the
needs of the over 50s. This segment
of the population is the fastest growing,
most affluent and influential demographic
in the UK. It accounts for 75% of the
UK’s household wealth and 50% of the
UK’s household expenditure. Needs are
increasingly changing as the demographic
as a whole continues to work longer and
lead more active lives.
As part of our in-depth work on enhancing
our customer knowledge and making
our database work more efficiently for
us, our knowledge of whom the Saga
brand plays best with within our wider
target market is improving significantly.
The target customer for the Saga
brand is predominantly within four very
specific mosaic classifications whose
characteristics are: over 60s; within
ABC1 households; and having above
average acquired assets. Our ability to
map digitally their interactions with us
and track what they do and don’t like,
has led to a more efficient customer
acquisition strategy, allowing us to tailor
our approach in order to continue to
delight our customer.
Macro conditions
While macro events out of our control
always have the potential to create a
headwind, our target customers tend to
be more resilient during times of economic
uncertainty. In many instances, they
live off pensions, savings and pools of
acquired assets. This reliable stream
of unearned income is a notable
characteristic of ABC1 households.
Additional factors which enhance the
economic stability of this group include:
• low levels of debt;
• fewer fixed costs; and
• members at the bottom end of the
demographic benefiting from
inheritance from the top end.
While the macroeconomic cycle will
impact the underlying performance of
our wider business, each of our core
businesses of insurance and travel
have different sector specific cycles.
There is potential for customer
behavioural changes depending on
the stage of each cycle but, given the
strengths of our demographic, we tend
to see this to a lesser extent compared
with other market participants. Also,
as Saga operates different businesses
across different sectors, this helps
provide against a downturn in a
particular sector. If, for example, the
motor insurance market became
subdued, we would be able to focus on
our cruise and travel businesses as well
as other insurance lines, such as travel,
home and PMI.
Our travel business also benefits from
comparatively strong resilience. Indeed,
following the EU referendum vote, fewer
than 1% of our customers said they
would reconsider their future holiday
plans, and our new ship has generated
nearly 10,000 pre-registrations for its
initial cruises.
Regulatory and political change
The over 50s are the most politically
engaged demographic in the UK, and
are therefore highly politically influential.
For example, polling amongst our
customer base gave us advanced
visibility of the likely success of the
Brexit vote when the professional polling
companies were still indicating a win for
the Remain vote. Our insight into the
most important issues for our customers
is extremely valuable, and we aim to
create products and services that either
take advantage of, or protect against,
regulatory change. We also engage on
these issues on their behalf when
appropriate to do so.
Projected growth of the UK’s over 50s
Saga as a regulated business
Saga operates across a number of
regulated sectors, notably within our
financial services and travel businesses.
Regulation in these sectors continues
to evolve constantly and we are experts
in maintaining good communication with
our regulatory bodies in order to ensure
that we are always in a position to adapt
quickly to any changes that could
impact our operations. Given our
target demographic, we often work with
vulnerable customers. Our focus on our
customers means that we are able to
recognise that some may need more
attention than others and we run
dedicated teams throughout our
business to ensure that vulnerable
customers are identified and given
a helping hand.
The competition for customers
As we operate across a number of
sectors, we compete with many providers
in those markets. While our brand as the
over 50s specialist in the UK is particularly
strong, we do not have a monopoly on
our customers. We do, however, have
the advantage of focusing on this
demographic, which means everything
we do can be tailored to the specific
needs that are characteristic of our
customer base. This gives us a
competitive advantage against peers
who offer their products to all age ranges.
35% of the
population
40% of the
population
1993
2003
2013
2023
2033
2013-2033
Growth
i n c r e a s e
c . 7 m
26.7m
10%
10%
29.1m
12%
73%
11%
39%
22.4m
8%
9%
18%
19%
17%
77%
18.1m
7%
9%
20.0m
8%
8%
15%
18%
40
30
20
10
0
Age group
50-65
65-75
75+
Source: Centre for Economic and Business Research.
11
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Our strategy at a glance
Our strategy
KPIs
Strategic delivery
1. Becoming
increasingly
customer-
centric
2. Growing profit
in our retail
insurance and
travel
businesses
3. Investing in
future growth
4. Maintaining
our efficient
operating model
5. Developing
our people
9.7%
22.2%
Profit before tax
£193.3m
£176.2m
Earnings per share
14.1p
13.3p
6.0%
Dividend per share
8.5p
7.2p
18.1%
Available operating
cash flow
£217.6m
£178.1m
Debt ratio
1.9x
2.3x
Number of HACs
483k
Core product holding
per HAC
2.1
Becoming increasingly
customer-centric
• Put the right team in place to make more
of our database and deliver our multi-channel
marketing activities.
• Identified the core group of HACs who form 20% of
our customer base and contribute approximately
80% of our profits.
• Delivered new marketing capability with the
introduction of the Adobe Marketing Cloud that
allows us the better to identify customers with the
characteristics of HACs.
Growing profits in our retail
insurance and travel businesses
• Delivered profit growth across our key retail
broking business.
• Increased profits through passenger growth and
improved margins in our tour operating business
and optimum yield of our ships.
Investing in future growth
• Continued to evolve the design and position
of the new shipping capacity which will
significantly change the profit trajectory
of our travel business once delivered.
• Developed our Saga Money business.
• Continued the Saga Healthcare and Retirement
Villages pilots.
Maintaining our efficient
operating model
• The model continues to generate strong cash flows.
• Successfully launched the quota share arrangement
with New Reinsurance Company Limited (‘NewRe’),
and the planned extension of the arrangement by
three years.
• Invested in our new retail insurance platform and
a new claims platform to deliver efficient savings
within insurance businesses.
• Delivered Group wide cost and procurement
efficiencies.
Developing our people
• Achieved a sustainable engagement score of 81%.
• Invested in our leadership capability with the
launch of the ‘Leading the Saga Way’ Leadership
Development Programme for our top 100 managers.
12
Number of HACs
Core product holding per HAC
Launch of the Saga membership scheme
Profit before tax from core businesses growing
New ship continues to be on track for delivery in
mid-2019 and the first cruises will go on sale later
this year
Growth in our portfolio of Saga Money products
Continued success of the Saga Healthcare and
Retirement Village pilots
Investment in our new retail insurance platform and
our enhanced data capability continues on track
Deliver cost and efficiency improvements
Continued improvement in sustained engagement
Rollout of the Leadership Development Programme
to the top 400 leaders within Saga
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Becoming increasingly
customer-centric
• Put the right team in place to make more
of our database and deliver our multi-channel
marketing activities.
• Identified the core group of HACs who form 20% of
our customer base and contribute approximately
80% of our profits.
• Delivered new marketing capability with the
introduction of the Adobe Marketing Cloud that
allows us the better to identify customers with the
characteristics of HACs.
Growing profits in our retail
insurance and travel businesses
• Delivered profit growth across our key retail
broking business.
• Increased profits through passenger growth and
improved margins in our tour operating business
and optimum yield of our ships.
Investing in future growth
• Continued to evolve the design and position
of the new shipping capacity which will
significantly change the profit trajectory
of our travel business once delivered.
• Developed our Saga Money business.
• Continued the Saga Healthcare and Retirement
Villages pilots.
Maintaining our efficient
operating model
• The model continues to generate strong cash flows.
• Successfully launched the quota share arrangement
with New Reinsurance Company Limited (‘NewRe’),
and the planned extension of the arrangement by
three years.
• Invested in our new retail insurance platform and
a new claims platform to deliver efficient savings
within insurance businesses.
• Delivered Group wide cost and procurement
efficiencies.
Developing our people
• Achieved a sustainable engagement score of 81%.
• Invested in our leadership capability with the
launch of the ‘Leading the Saga Way’ Leadership
Development Programme for our top 100 managers.
Measuring success
Number of HACs
Core product holding per HAC
Launch of the Saga membership scheme
Profit before tax from core businesses growing
New ship continues to be on track for delivery in
mid-2019 and the first cruises will go on sale later
this year
Growth in our portfolio of Saga Money products
Continued success of the Saga Healthcare and
Retirement Village pilots
Investment in our new retail insurance platform and
our enhanced data capability continues on track
Deliver cost and efficiency improvements
Continued improvement in sustained engagement
Rollout of the Leadership Development Programme
to the top 400 leaders within Saga
What's our plan?
Our strategic objectives for the coming
year are:
1 Becoming increasingly customer-centric
We will continue the customer insight work, enhance
our data capability and launch membership.
p14
2 Growing profits in our retail insurance and
travel businesses
As the largest part of the Group, our retail insurance
business remains a vital tool in acquiring and retaining
customers. The travel business remains at the heart
of the Saga brand and we use our customer insights
to ensure the proposition remains relevant.
p14
3 Investing for future growth
We continue to invest in our core businesses of
insurance and travel, and the emerging businesses.
p15
4 Maintaining our efficient operating model
We will finalise the delivery of our new claims
platform and continue on track with our new retail
insurance platform.
p15
5 Developing our people
Our people are central to everything we do by
ensuring that our customers receive the Saga
experience throughout the business.
p15
13
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Strategic report
Delivering our priorities
1
Becoming
increasingly
customer-centric
The customer work we have
completed has given us both
enhanced insight into customer
behaviours, and the ability to utilise
that knowledge to offer our customers
more of the products they want, in the
right way and at the right time.
Membership
Saga’s brand is synonymous with
life after 50 in the UK. Thanks
to consistently delivering tailored
products underpinned by exceptional
service over many decades, customers
often refer to being ‘Saga members’
without us ever having run an official
membership scheme.
Utilising the customer work we will
create a platform through which to
reward and incentivise our customers
to both stay with Saga and deepen their
relationship with us, we will launch a
Saga membership programme in the
second half of this year. The scheme is
open to all existing Saga customers and
will be named “Saga Possibilities” and
its mission statement is to “Help you,
our members, get more out of Saga and
do more of the things that matter most
to you”.
Saga Possibilities will be structured
around four key components:
• Experiences: provide members with a
constant stream of inspiring products
and experiences they can try.
• Expertise: the go-to place for the
over 50s for subject matter expertise,
providing information, inspiration, and
expertise on topics that matter most.
• Everyday: To make the little things
in life more enjoyable, easier and
better value.
• Enhanced Saga products: Every
product and service that Saga sells
will have extra enhancements for
our members.
We believe that the combination of
our increasing customer insight, data
capability and membership will be
extremely powerful, helping us to
focus our efforts on rewarding,
retaining and growing our target
customers and deepening our
relationship with them. Our goal is to
grow the number of products held by
HACs by 20% over the next 5 years.
Growing
2
profits in our retail
insurance and
travel businesses
competitive retail broking products
to a broader section of our target
marketplace, while using enhanced
insight from our customer work to
improve our product offerings,
encourage loyalty and grow multi-
product holdings.
We will maintain our focus on retail
broking. Our third party panel members
will continue to allow us to offer
We will continue the work to ensure that
Saga Holidays and Saga Cruises remain
relevant by working with our customers
to develop new propositions that
appeal to them. High standards of
customer satisfaction across the
business will remain a priority, as
will using our enhanced customer
insight to increase retention of our
valuable travel customers and their
cross-sell ratios into other areas of
the business.
14
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Investing for
3
future growth
In consultation with our customers, we
have made further changes to the design
of the new ship, which is on track for
delivery in mid-2019, and the first cruises
will go on sale later this year.
We will target further growth in our portfolio
of Saga Money products and continue to
develop our existing pilots in Saga
Healthcare and Retirement Villages.
Our drive to improve the customer
experience and efficiency of our
insurance operations through the
modernisation of our insurance sales
and administration platform continues.
The system will enable us to increase
product differentiation within the
insurance business, as well as provide
our broking service more efficiently.
We also expect to roll out our new
claims platform this year.
4
Maintaining
our efficient
operating model
We will continue to focus on running the
business in the most efficient way possible
by growing earnings organically and
continuing to carefully assess capital
allocation. This will lead to a higher quality
of earnings over time.
Additional efficiency savings will be
delivered through investment in the new
retail insurance system and a claims
handling system, together with Group
wide procurement projects.
Developing
5
our people
We are continuing to invest in the
development of our current employees,
and to hire new talent where needed.
We continue to instil the customer-centric
culture that makes Saga different.
The ‘Leading the Saga Way’ Leadership
Development Programme will be rolled out
to the top 400 leaders across Saga.
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
15
Strategic reportGovernanceFinancial statements Strategic report
Our resources and relationships
People, culture and community
Saga people are core to our brand.
We recognise that their energy, passion,
and customer advocacy drives Saga’s
success, and we’re incredibly proud of
their ability and creativity. This year we’ve
continued to invest heavily in our people,
and focused key activities to embed The
Saga Way further. It encourages our
people to be brave and challenge, strive
to deliver exceptional service to our
customers, whilst creating a purpose
and belonging to what we call The
Saga Family.
We recognise the benefit of having highly
energised and engaged employees who
have shared values and believe in our
products and services. We are delighted
that 2016 was another solid year for
employee engagement. Our annual
engagement survey produced the
highest level of employee participation:
81% of our employees responded to our
survey and we maintained a sustainable
engagement score of 81%, which
was very encouraging. We continue
to consistently out-perform the UK
national norm.
We’ve continued to improve our
employee value proposition providing
our people with clear reward and career
structures, with commitments from us
that support them to grow with Saga,
and enable us to attract high quality
talent into our business.
We support people who want to learn.
That’s why in 2016 we developed our
in-house learning and development
calendar to maximise the learning
opportunities at Saga. We’ve also
spent 2016 investing in our leadership
and management capabilities by
introducing a development course,
‘Leading the Saga Way’, that’s focused
on embedding a high-performing and
high-support culture in our organisation.
Our top 100 leaders are working through
this programme and we will soon be
extending it to our 400 senior leaders.
Building strength across our leadership
team is essential for us to sustain our
high levels of employee engagement
and drive short and long-term business
performance.
We’re passionate about our people’s
progression at Saga, so we’ve continued
to review talent at all levels every six
months. We have also extended our
succession pipeline to five to seven
years to identify our rising stars, as
well as training our managers to have
honest career conversations, and set
stretch objectives that support our
employees’ ambitions. We recognise
that mobilising talent across Saga is
essential in deepening our connection
to our customers, innovating our
products and services, and retaining
talent within our business.
Celebrating success and rewarding
exceptional performance is part of our
culture, and our reward commitments
underpin this.
We are committed to:
• making our rewards simple and easy
to understand;
• rewarding great performance;
• being competitive and fair;
• creating flexible reward structures
for all of the Saga family;
• making our rewards work for the
long-term; and
• sharing our success.
We balance the need to attract and
retain high quality talent essential to
the Company’s success with the need
to manage costs, ensure we remain
competitive and fair, and recognise
exceptional performance. Close alignment
of our people with our business is really
important to us. That’s why we have
again awarded £300 worth of shares
to our people so they can share in
our success and are aligned with our
business strategy. Our plan is to do
this every year.
Gender diversity January 2017
Board1
Senior Managers2
Employees3
All
Male
Female
Actual
6
118
1,930
2,054
%
75%
67%
44%
44%
Actual
2
57
2,564
2,623
%
25%
33%
56%
56%
Total
8
175
4,494
4,677
Notes:
1 Directors of the Company including executive and non-executive.
2 All divisional Directors, and employees with strategic input and influence.
3 All Saga employees (excluding Directors and senior managers).
16
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Diversity and having an employee
base that brings different perspectives,
backgrounds and ways of thinking is very
important to our business. Our policy is
that full and fair consideration is given
to applications for employment by all
applicants, including those with disabilities,
and for continuing the employment of
employees who become disabled during
employment. We are committed to treating
all employees fairly and offering equal
opportunities in all aspects of employment
and advancement.
It’s really important to us that our people
speak up, get heard and we take action
when necessary. That’s why we’ve
created channels that support two-way
communication to understand what’s
working in Saga, and how we can
continue to improve our business for
both our customers and people. We’ve
made great strides in 2016 to develop
our internal communication plans so that
we encourage the development of a
‘One Saga’ culture, whilst helping our
people understand our strategic
objectives and how they fit with them.
Our goal is to be the best employer in
the South East and everywhere that we
operate and we continue to have strong
leadership commitment with a clear plan
to deliver this.
Community and Social
We’re proud to give something back.
Saga is a major employer in Thanet,
Folkestone, Hastings and Redhill.
We recognise our responsibilities to
the communities from which we draw
potential recruits and also aim to be
a good neighbour to local residents.
After seeking the opinion of many Saga
customers and employees, we are proud
that The Silver Line is Saga’s first ever
national charity partner. This is a great
fit with our ethos as, like The Silver Line,
making the lives of people better is at
the heart of what we are here to do.
We make a real commitment to give
back to the communities in which we
live and work. In 2016 we supported a
variety of local charities through allowing
them to use our Pavilion at Saga’s HQ
– groups supported include the Cub
Scouts which were celebrating their
“Working for a busy, customer focused
company is a pleasure, and there
seems to be a real effort to give
something back to the employees
these days, which is very refreshing
and exciting.”
“There is a deep respect amongst
employees for Saga’s customers –
which has found a new voice in the
Saga Way.”
“I think the open opportunities available
for those individuals who want to
develop and progress are outstanding.”
“What’s the best thing about working
here? The people, my colleagues.”
Employee engagement
We focused on improving Talent
Management, Culture and Reward
& Benefits in our Group Employee
Engagement Action Plan. We have
worked very hard and are incredibly
proud of everything that we have
achieved so far.
100th anniversary. Titan Travel’s local
charity near Redhill was the Golden
Lion Children’s Trust; Destinology
raised funds for The Bolton Hospice;
and, Bennett’s local charity has been
Myton Hospice in Coventry. We have
set up charity representatives at each
site to help us coordinate activities
and we have also introduced company
matched funding to encourage people
to participate.
During the year our contact centres were
used for Children in Need and Sports
Relief and the phones were manned by
volunteers from across the business.
As a signatory to the Corporate
Covenant we have polices that support
employees who are members of the
reserve forces or are spouses of those
serving in our armed services. We also
support local army, air and sea cadets
and hold an annual Armed Forces day
BBQ that raises money for: Royal British
Legion; The Soldiers Sailors and
Airmen’s Families Association; Help for
Heroes; and, Royal Navy and Royal
Marines Charity.
The Saga Respite for Carers Trust has
paid for respite care and provided
holidays for 28 carers and their
companions during the year.
This year the Saga Charitable Trust
has provided 14 grants totalling over
£200,000. Projects included courses
for unschooled girls in India, the
construction of a 12 bed children’s
home in Malawi and a farmer training
programme in Peru.
Saga also has an important social
commentary and campaigning aspect to
the brand and we have spoken up on a
number of issues that affect the nation’s
over 50s – GP waiting times, Stamp Duty
exemptions for downsizing, employment
of older people, pension changes, age
discrimination and the social care crisis
to name but a few.
We have also produced reports on
topics including over 50s travel spend
and the changing face of travel for those
in retirement, and the future of pensions.
Saga is strictly non-party political but
we do survey over 50s opinions of
political topics. Our polling prior to the
EU Referendum correctly predicted the
outcome (52% vs 48%). Our polls also
show that over 50s remain confident in
the future and the Referendum did not
dent their passion for travel.
Our insight is aided by the Saga Populus
Panel – the largest poll of over 50s
opinion. Since its inception in 2007,
1.3 million respondents have provided
24 million answers to a range of
topical questions.
Human rights
Saga conducts business in an ethical
and transparent way. Policies to support
recognised human rights principles
include those on non-discrimination,
health and safety and environmental
issues. Saga has a zero tolerance
approach to bribery and corruption.
17
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Our resources and relationships continued
Greenhouse gas emissions in tonnes of carbon dioxide (tCO2) or carbon
dioxide equivalent (tCO2e)
Scope 1
Scope 2 (location-based)
Total Scope 1 & 2
tCO2e per £m customer sales
Scope 2 (market-based)2
Scope 3
2016/17
Emissions
100,951 tCO2e
5,343 tCO2e
106,294 tCO2e
89.9
658 tCO2
425 tCO2e
2015/16
Emissions1
100,692 tCO2e
6,235 tCO2e
106,927 tCO2e
94.8
1,078 tCO2
1,637 tCO2e
Notes:
1 2015/16 Scope 1 emissions have been restated, following a review of fugitive gas emissions;
emissions factors have been identified for all gases that have a global warming potential.
2 Emissions from the consumption of electricity outside the UK and emissions from purchased
electricity calculated using the market-based approach using supplier specific mission factors
are reported in tCO2 rather than tCO2e due to the availability of emission factors.
Total location-based emissions
(2016/17)
1 Scope 1 95%
2 Scope 2 5%
3 Scope 3 0%
2
1
Methodology
We quantify and report our
organisational GHG emissions in
alignment with the GHG Protocol, which
includes alignment with the Scope 2
Guidance (reporting Scope 2 purchased
electricity using both the location-based
and the market-based methodology).
The UK Government 2016 Conversion
Factors for Company Reporting have
been utilised in order to calculate Scope
1, Scope 2 (location-based) and Scope 3
emissions from corresponding activity
data. IEA emissions factors have been
used for the conversion of consumption
from Bel Jou in St Lucia for the period
that it was under control of Saga plc.
Supplier-specific emissions factors
have been applied for the calculation
of Scope 2 market-based emissions,
where available.
Emissions factors have been sourced
from the US Environmental Protection
Agency (EPA) for refrigerant gases that
do not have an emissions factor in the
UK Government database to ensure that
all gases that have a global warming
potential are accounted for.
The Group is committed to transparency
within our supply chain. We have carried
out risk assessments and conducted
due diligence on our material suppliers,
full details of which will be included
within our annual statement which will
be published as stipulated under the UK
Modern Slavery Act 2015. This statement
will summarise our actions to address
the risk of modern slavery and human
trafficking within our own operations
and those of our suppliers.
Health and safety
Saga is committed to protecting the
health, safety and welfare of employees,
customers and anyone affected by
our operations. We have a positive
health and safety culture and seek
to improve continuously health and
safety performance.
We meet our obligations through
the development and implementation
of suitable policies and procedures.
Beyond this, everyone in Saga has a
personal responsibility for health and
safety and for performing the activities
they undertake in a safe manner
and this is regularly communicated.
Greenhouse gas emissions
This section of the annual report has
been prepared in accordance with our
regulatory obligation as a listed company
to report greenhouse gas emissions
(‘GHG’) pursuant to Section 7 of The
Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
During the 2016/17 financial year, the
Group emitted a total of 106,294 tCO2e
from fuel combustion (Scope 1 direct)
and electricity purchased for our own
use (Scope 2 indirect). This is equivalent
to 89.9 tCO2e per £m customer sales.
We have also chosen to voluntarily report
Scope 3 emissions arising from our
business travel, which contribute 425
tCO2e.
The table above shows our GHG
emissions for the year ended
31 January 2017.
18
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Reporting boundaries
and limitations
We consolidate our organisational
boundary according to the operational
control approach and have adopted a
materiality threshold of 5% for GHG
reporting purposes.
The GHG sources that constitute our
operational boundary for the 2016/17
reporting period are:
• Scope 1: Natural gas combustion
within boilers, marine fuel combustion
within ships, road fuel combustion
within vehicles, fuel combustion
within non-road mobile machinery
and fugitive refrigerants from
air-conditioning equipment
• Scope 2: Purchased electricity
consumption for our own use
• Scope 3: Business travel from
grey fleet.
Diesel used in non-road machinery was
previously not reported due to lack of
data availability, but is now recorded and
will be reported from 2016/17 onwards.
Scope 3 business travel emissions from
rail and air have been identified, but not
included in our disclosure due to a lack
of accurate data.
Assumptions and estimations
During this reporting year the Bel Jou
hotel in St Lucia was sold on 20 July
2016. No data was available for Bel Jou’s
operations in 2016/17 due to the change
in ownership. The emissions for the
period of the year in which Bel Jou was
part of the Group have been estimated
using data from 2015.
In some cases, where data is missing,
values have been estimated using either
an extrapolation of available data from
the reporting period or data from 2015
as a proxy.
Energy procurement decisions
The following graph shows the Group’s
Scope 2 emissions from purchased
electricity, which have been calculated
using both the location-based and the
market-based methodologies.
Scope 2 electricity emissions by
reporting type
5
3
2
6
,
3
4
3
5
,
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Scope 2
(location-based)
8
7
0
1
,
8
5
6
Scope 2
(market-based)**
2015/16 Emissions
2016/17 Emissions
Saga purchases electricity for the
majority of its buildings from a 100%
renewable supply from Haven Power.
The remainder of the UK electricity is
supplied by SSE, which has a cleaner
fuel mix than the UK average. The dual
reporting of our emissions in this way
demonstrates the impact that selecting
these suppliers has on our GHG
emissions, and that we are making
efforts to reduce our climate impact
through the purchase of electricity
generated from cleaner sources.
Improving performance
Saga actively monitors and manages
its carbon impact. Our shipping business
has seen a reduction in marine fuel
usage by 3% through careful route
planning; there have however been
unforeseen leakages in refrigerant
which have mitigated these reductions.
There are reductions in fleet fuel usage
and business mileage, and the sale of
Allied Healthcare and the Bel Jou hotel
have reduced electricity use by 15%.
In our main office sites, there are
ongoing initiatives to reduce utility
use. These include, but are not limited
to, a programme replacing all office
lighting with LED, ongoing use of
voltage optimisation in large sites, active
management of building management
systems to control carefully main building
infrastructure and a capital infrastructure
programme to replace old inefficient
equipment with modern energy efficient
systems. There is a continued
use of electric vehicles in our
maintenance fleet, and, where practical,
active initiatives to switch off unused
equipment. The management of our
carbon impact has seen an improvement
in the score calculated by the Carbon
Disclosure Project and Saga now has
a ‘B’ score which benchmarks well with
comparable UK based companies. There
is a long-term plan to further improve
that score targeting an ‘A’ score in
2019. Overall our Scope 1 and Scope
2 emissions have reduced by 0.6%
compared with last year.
Supplier partnerships
These relationships are fundamental
to our business model. We work very
closely with our suppliers to deliver the
products and services to the standard
our customers expect.
Once we have designed and tested
products and services, we decide how
best to source them for our customers
– in-house or from a third party.
We are not a commission-based
business. We design bespoke products
ourselves then look for the best possible
partners to supply them, comparing
them for service and value. Over time we
can move if more appropriate, or better,
partners become available. Our partners
work with us in this way because it is a
mutually advantageous relationship –
they benefit from our brand, customer
knowledge and access to an attractive
target market. Saga, and its customers,
benefit from our partners’ expertise and
resources. This also means that we
maintain responsibility for delivery and
continue to own the relationship with our
customers, ensuring we can manage the
customer experience at all times.
19
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Our principal risks and uncertainties
Risk governance
We have agreed with the Board systems
and processes to govern our approach
to risk management. These systems
specifically encompass ensuring an
effective risk assessment and
management system is in place; agreeing
the principal risks and uncertainties the
business should accept in pursuit of
its strategic objectives and regularly
reviewing the status of these; ensuring
a suitable risk culture is embedded
throughout Saga; and frequently
assessing the effectiveness of the Group’s
risk management systems, including
essential levels of internal and external
risk communication. Our approach and
these processes are set out in more
detail in the Accountability section of our
Corporate Governance Statement on
pages 54-57 of this annual report.
We believe that enhanced sustainability
and shareholder value will come through
achieving the optimum balance between
risk and reward. Our divisions face a
range of risks and uncertainties that
could impact their strategic objectives,
some common to the Group as a whole
and others unique to the particular
business or operation. It is therefore
imperative to have a risk management
policy and framework capable of
assessing and monitoring these risks
and uncertainties individually and in
aggregate against an agreed risk
appetite to ensure management
within agreed tolerances.
Risk appetite
Our risk appetite, reviewed annually,
defines the amount and sources of
risk which we are willing to accept in
aggregate in pursuit of our objectives.
We express our overall attitude to risk
using the following dimensions:
Financial strength
We aim to maintain an appropriate buffer
of capital resources within the Group
and, where relevant, within our legal
entities, to ensure that we are able to
absorb reasonable operational variation
and meet regulatory thresholds.
Earnings volatility
We have a low appetite for volatile
earnings and have established limits
representing the maximum amount of
acceptable variation in earnings during
our planning cycle.
minimum financial buffer is maintained
in pursuit of our objectives.
Liquidity
We aim to maintain a prudent level of
free cash and committed borrowing
facilities so that all entities in the Group
have rapid access to funds when needed.
Conduct
We recognise that our continued
success depends on maintenance of our
brand, and reputation for quality service
with our customers. We therefore strive
to eliminate any systemic unfair customer
outcomes as a result of failures in the
product, marketing, sales or service
delivery systems and processes, or
cultural shortcomings.
Customer growth
Our goal is to know as many of our
target customers as possible so we
have a low appetite for actions or events
which lead to a low growth or reduction
in the number of our target customer
contacts.
We further describe our attitude towards
the following main categories of risk that
we encounter through carrying out
our business:
Market risk
We seek some market risk through
our investment activity and seek to
earn returns commensurate with our
risk appetite. We have limited appetite for
foreign exchange risk, commodity price
movements and interest rate movements
and actively manage these to reduce risk
where possible.
Credit risk
Our practice of working with external
counterparties, such as intermediaries,
risk management activity (such as
reinsurance and hedging) and deposit
making introduce elements of credit risk.
We have a low appetite for credit risk but
are prepared to accept it to some extent
where it is necessary to achieve our
business objectives.
Liquidity risk
Through our daily operations we are
exposed to needs for liquidity and we
have a low appetite for this risk. We
will therefore accept, but actively seek
to manage, liquidity risk to ensure a
Insurance risk
We actively seek measured amounts of
insurance risk in business lines where we
have appropriate expertise and expect to
be appropriately rewarded for accepting
the risk. We will accept limited insurance
risk for personal injury risks that we feel
we have the expertise to underwrite
and manage and will accept non-life
insurance risks that we have the relevant
expertise in.
We enter into certain reinsurance
arrangements, including the new
funds-withheld quota share arrangement
with NewRe, to reduce our exposure
to large losses and any potential
deterioration in claims development.
Strategic risk
We operate in a dynamic business
environment and accept that we are
exposed to a number of strategic
risks. We will actively seek to grow
our business in areas which present
sustainable growth opportunities and
where we have demonstrable expertise.
Mergers and acquisitions risk
We aspire to levels of business growth
which may require us to consider merger
and acquisition opportunities from
time to time. Where these arise in
areas where we have expertise we will
consider them and establish suitable risk
tolerances in each case.
Operational risk
We actively seek some logistical risks
where we believe that we have expertise
and will be rewarded for taking them.
We have a very low appetite for risks
which threaten our reputation and will
only engage in regulated activities where
we have the expertise to manage them
effectively. We define our risk appetite for
certain specific areas of operational risk
as follows:
Health and safety
We have zero appetite and a low
tolerance for health and safety risks
and we will do all that is reasonably
practicable to prevent personal injury
and danger to the health of our
employees, customers, and others
who may be affected by our activities.
20
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC 1 Becoming increasingly customer-centric
2 Growing profits in our insurance and
travel businesses
3 Investing in future growth
4 Maintaining our efficient operating model
5 Developing our people
Cyber security
We recognise the need to utilise
technology to achieve our business
objectives. We are, however, focused
on maintaining a robust and secure IT
environment, with particular attention
being paid to avoiding loss of customer,
employee and other business
confidential data, and interruption of
customer service. We, therefore, have
zero appetite and very low tolerance
for risks that could breach our security
measures and threaten the security
of our systems and data.
Separate risk appetite statements and
risk tolerance thresholds have also
been created for each business in
Saga, customised to their business
needs and complementary to the
Group’s tolerances.
Risk appetite statements and risk
tolerances are central to our decision
making processes and are a point
of reference for all significant
investment decisions.
Principal risks
and uncertainties
IT systems
and processes
Strategic priorities
linkage and risk
movement
1
2 3 4
Cybercrime
1
2 3 4
Specific concerns
Response/mitigation
Failure of our core IT
systems to deliver required
performance stability
and resilience.
We have allocated specific investment for refreshing our
IT Infrastructure and continue to strengthen our core IT team
and processes.
Inability to develop digital
offerings sufficient to drive
innovation and growth.
Digital innovation remains a core focus at Group and business
level with continued investment during 2016 in system
development and supporting resource.
Cybercrime attacks cause
breach/loss of sensitive
data assets and prevent
achievement of objectives.
We have continued to strengthen our Information Security
team and protective counter measures during 2016 and
our approach has been validated through a third party audit.
Saga’s continuous improvement programme is in place to
ensure protections continue to be appropriate.
Database
1
2 3 4
Compliance with the
incoming EU Data
regulations (GDPR).
We have mobilised a programme of work to make any further
improvements necessary to ensure compliance.
People
1
2 3 4
5
Our culture does not deliver
the Saga brand.
We have redefined our brand and cultural values and cascaded
these throughout the Group. We have created a further two year
plan to ensure that these values are completely embedded
group wide.
We do not attract and/or
retain the right people to
achieve our objectives.
A revised people strategy has been introduced, designed to
address attraction and retention issues across the Group and
to ensure a pipeline of future talent at all levels.
Operational
efficiency/
change/
innovation
1
2 3 4
Failure to accrue expected
benefits from operational/
change initiatives.
We have added further resource to our dedicated change
management function, and enhanced our change management
governance to ensure change is managed consistently and
effectively. Operational and change initiatives are reviewed
at all governance and trading meetings and mitigating steps
taken where appropriate.
Failure to maintain existing
shipping fleet at a level to
meet both customer
expectations and plan.
A ‘beyond compliance’ maintenance programme covering all
aspects of our ships is overseen at Group level and reported
weekly via our governance structure. Regular refits and
overhauls ensure our ships are resilient and offer the quality
of product our customers expect.
New ship does not fully meet
business/customer needs.
We have created dedicated product development and transition
planning projects to ensure our customer needs are fully
understood and met.
Business
interruption
1
2 3 4
Reputational damage arising
from ineffective handling of
interruption incidents.
We have reinforced our Business Continuity team and continue
to test and revise our Business Continuity Plans to address all
aspects of potential interruption scenarios.
2 3 4
Loss arising from shipping
technical failure or maritime
incident.
Our ‘beyond compliance’ safety and maintenance programme
covering all aspects of our ships is overseen at Group level and
reported weekly via our governance structure.
21
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Our principal risks and uncertainties continued
Strategic priorities
linkage and risk
movement
Specific concerns
Response/mitigation
Principal risks
and uncertainties
External
regulatory
landscape/
political change
1
2 3 4
Breach of regulation governing
our operations.
Inability to respond to regulatory
change affecting our business.
1
2 3 4
5
New
UK decision to leave the
EU negatively impacts our
business models.
Counterparty
1
2 3 4
Inability of key partner to provide
appropriate service leading to
failure to produce anticipated
benefits and reputational damage.
Insurance
landscape
1
2 3 4
Inability to compete with
insurance competitors.
Rates in the motor insurance
market do not move as expected.
Dedicated Compliance teams are embedded in all
regulated businesses and are responsible for monitoring
compliance performance. Teams exist at Group level to
ensure Group compliance with key legislation such as the
Health and Safety at Work Act.
Saga has a diversified business model to lessen the
potential impact of changes affecting one product or
service. Emerging and horizon compliance risks are
tracked by the dedicated business compliance teams
and raised at all governance forums.
We have created a task force to assess and respond
to change arising from the implementation of ‘Brexit’.
Saga controls its third party supply quality through
contractual terms and agreed service level agreements.
Adherence to these documents is monitored through
internal and external audits, Customer ‘moments of truth’
surveys and customer complaint review. During 2016 we
refreshed our selection, monitoring and due diligence
processes in place for all key partners/suppliers.
Competition within the Insurance market remains intense.
To counteract this, we control the underwriting process
for both broking and insurance operations, thereby
allowing us to compete on policy terms and price
where appropriate.
We continue to run a motor panel arrangement, thereby
increasing competitiveness and reducing risk. We
continuously review AICL risk appetite to consider
non-standard risks where they are understood.
Claims experience is adverse
compared with current best-
estimate assumptions.
We adopt strict underwriting criteria to price our risks,
and review our claims and reserve development frequently.
We also purchase reinsurance to reduce claims volatility,
including the new funds-withheld quota share arrangement.
Conduct/
customers
1
2 3 4
Our behaviour results in poor/
unacceptable outcomes for
customers.
Saga’s governance structure is built on the premise
of customer dedication with regular consideration of
customer satisfaction throughout the organisation.
Macroeconomic
climate
1
2 3 4
Changes in the macroeconomic
climate impact our customers’
inclination/capability to purchase
our products and services.
The impact of external economic factors on costs and
customer demand are closely monitored throughout the
group and necessary changes are made to products and
services regularly.
2 3 4
Investments do not yield
expected returns.
We manage its investment portfolio through an investment
committee which ensures a spread of
risk and optimal returns.
Travel landscape
1
2 3 4
Inability to offset product
commoditisation with agile
pricing and yield management.
We have focused on improving our efficiency and flexibility
during 2016, to allow us to bring the right products to the
market at the right time.
Failure to enhance customer
propositions and brand
perception to drive more first
time buyers and additional
revenue streams.
Failure to create expected
customer demand for future
shipping capacity.
Detailed reviews of customer wants and needs have
been undertaken and work is ongoing to create products
which meet both existing customers’ and first time
buyers’ requirements.
We undertaken comprehensive customer research
to understand future expectations and have marketing
and sales development plans in design to deliver increased
demand. We have a Transformation Programme in place to
create appropriate service offerings and operation and
marketing plans for the new vessel when it is delivered.
22
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC A busy
year
Everything we have achieved this year has been a result
of the successful implementation of the clear strategy.
Put simply we have continued to grow earnings from
our core businesses and invest in future growth whilst
focusing on our customers journey.
Strategic report
Divisional review
Retail broking
Our retail broking business
provides tailored products
and services, ranging from
motor to pet insurance,
to millions of customers
each year.
Retail broking profit
£138.0m
+9.1%
Policy count
3.0m
+3.2%
Persistency rate – Motor
Profit per core policy
69.2%
Persistency rate – Home
74.6%
£46.0
+5.7%
Retail broking
Our retail broking business provides
tailored products and services, ranging
from motor to pet insurance, to millions
of customers each year. Its role is to
develop tailored products, price them
to the customer and then source the
cheapest cost of risk. This is achieved
through our panels of third party
insurers, which operate across both our
motor and home businesses, or through
solus arrangements, for example in travel
or private medical insurance. Our
in-house underwriter, AICL, sits on both
motor and home panels and competes
for the business on equal terms. If
underwritten by a third party, the product
is manufactured as a Saga product, and
the customer interaction will always be
managed by us. This approach to
sourcing underwriting gives us the
flexibility to operate a portfolio of
products that takes advantage of, or
protects against, prevailing market
conditions at any given time. Overall the
business performed strongly, with profit
before tax increasing by 9.1% to £138.0m
(2016: £126.5m).
Motor broking
We have delivered a strong improvement
in motor broking profitability, growing
profit before tax by 58% to £45.2m
(2016: £28.6m). This was driven by
a combination of improved yield
management, improved efficiencies
in marketing and operations and
the benefit of the motor panel.
The introduction of the motor panel
in summer 2015 has driven £3m of
additional profit in the year, with
around 30% of net premium for renewal
policies being placed with third party
underwriters by the end of the year.
These policies tend to be for younger,
higher risk drivers, meaning we are able
to achieve a higher margin in our broking
business without the need for holding
capital in our underwriter.
The enhancement of our customer
understanding is assisting in focusing
retention and acquisition efforts on
customers who are expected to add the
greatest value to the Group. We have
focused a greater marketing effort during
the year on these core customers.
Home broking
The UK home insurance market
continues to be highly competitive,
with limited evidence of premium inflation
in the market. Despite these difficult
conditions, we chose to maintain policy
volumes with a small reduction in profits.
Profit before tax decreased to £61.2m
(2016: £63.4m).
The combination of the panel, including
our underwriter, participating on a no
risk basis through our co-insurance and
24
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC reinsurance arrangements, enables us
to access a competitive cost of risk with
no downside underwriting risk.
Other broking
Within other insurance (primarily private
medical insurance (‘PMI’) and travel
insurance), customer numbers have
been stable and profit before tax was
£31.6m (2016: £34.5m).
PMI performed strongly with high levels
of persistency and robust demand. As
part of our ongoing drive to enhance
the customer proposition, we have
continued to improve the GP fast track
service and have extended the GP
helpline facility. These popular initiatives
are not widely available, and demonstrate
our knowledge of our customer base,
and our expertise in delivering bespoke
products that particularly appeal to our
demographic.
In travel insurance, we saw some
weakening of demand in the latter part
of the year, and some pressure on net
rates, as the effects of the currency
move worked through. The differentiated
aspects of our travel insurance product
range have ensured that our offering
has remained popular with customers.
This includes a recent add-on that
significantly reduces the cost of car
insurance, and access to our travel hub.
Both our travel insurance and PMI
products play an important role in the
Group’s customer acquisition strategy,
allowing us to reach high affinity
customers with the resources and time
both to travel and invest in their health.
We are applying our new customer
insight in a way that is already enhancing
cross-sell between our insurance and
travel businesses.
Current trading in retail broking
Given our varied retail broking product
lines, we always experience varying
market conditions in different
businesses. Overall, we have seen a
very positive start to the year on motor
premiums, with strong upwards
movement on new business. This is
currently running in excess of claims
inflation, and sets us on a strong footing
to improve motor broking profits during
the year. We have recently started to see
the effects of the Ogden rate change
being reflected in premiums across the
market and affecting the net rates on the
panel. However, this will take time to
work through.
Home has continued to be difficult, with
limited sign of premium inflation against a
backdrop of claims inflation. Therefore,
we expect another tough year for this
market, particularly given the benign
weather conditions over the winter period.
PMI is progressing well. Concerns over
the NHS, and its ongoing funding, are
leading to higher levels of interest and
quotes. We expect this to continue, but
with demand increasing on the private
sector, we may see the emergence of
increasing claims frequency and inflation.
Travel insurance demand is stable. We
are starting to see the impact of sterling
depreciation, which is filtering through to
higher prices and may suppress demand
going forward.
Overall, we remain positive on trading
for our retail broking business for
the coming year.
Case study: Our insight leads
to development of our private
medical insurance product
Cancer treatment has significantly
advanced in recent years, and insight
from our customers and specialist
nurses told us that our cancer cover
could be improved, given the rapid
advances in modern treatment
methods. Our customers said they
wanted the peace of mind that the
right treatment for their circumstances
would be covered if the worst were
to happen. We have therefore made
a number of changes to our cover to
enable us to better support customers
undergoing treatment; these include
removing the limits from our outpatient
cancer treatment cover and allowing
customers to be treated at home if
this better suits their needs.
What this means for our customers
With no limits on outpatient cancer
care, our customers can be assured
that we’re there to support them through
the most challenging times, and that
access to treatments that provide them
with the best chance of recovery will be
fully covered by their insurance. Having
treatment at home, for example
chemotherapy being administered by
specialist nurses in the home rather than
in a hospital, can be less traumatic and
more convenient for some customers
at what is clearly a difficult time.
How this helps us deliver
our strategy
By seeing the world through our
customers’ eyes, we’ve created a
new benefit that delivers on our goal
to develop products that are focused
on what our customers truly need, to
ultimately exceed their expectations,
particularly at the most important
times of their life.
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Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Divisional review continued
Underwriting
Our underwriting business
remains a critical part of our
business. Its expertise in
pricing older, lower risk
drivers, means that its high
quality book has a track
record of generating
consistent earnings.
Underwriting profit
Solvency II coverage ratio
£73.1m
-13.1%
Pure COR
94.7%
-4.7%
143%
-27%
Reserve releases
£59.9m
-7.4%
Insurance underwriting
AICL, our underwriter, retains its
competitive advantage and high panel
share of older, lower risk drivers; as
a result, it remains a vital part of the
Group. Its rigorous focus on these
drivers, along with ongoing efficient
management of claims, has led to an
excellent underwriting result. AICL
targets a 3% return on net premiums and
a strong return on equity, which it has
consistently delivered over many years.
The excellent management of claims
costs has also delivered a high level
of reserve releases. Profit before tax
was £73.1m (2016: £84.1m), with the
reduction due to reducing reserve
releases and the first year of cost
associated with our new quota share
arrangement.
AICL’s high quality book has a track
record of generating consistent earnings
for the Group. The implementation
of the quota share arrangement with
NewRe, covering 75% of the downside
risk of all motor policies written from
1 August 2015 for accidents occuring
from 1 February 2016, has decreased
our ongoing capital requirements for this
business, lowering both risk and volatility.
This has given us further confidence that
AICL can continue to provide a solid
contribution to our earnings in the future.
Reserve releases
With our clear targeted returns within
AICL, the net pricing provided to the
retail broking business provides flexibility
in pricing to customers, and retains a
large proportion of the Group’s earnings
within broking activities.
We have seen a decrease in reserve
releases from £68.0m to £63.0m
(excluding the Ogden effect) during the
year, and we expect the importance of
reserve releases in Group earnings to
decline gradually over coming years.
Ogden discount rate change
On 27 February 2017, the government
announced the reduction in the Ogden
discount rate, used to value long term
liabilities, from 2.5% to minus 0.75%.
Within the existing reserve surplus, AICL
had already assumed a significant
reduction in this rate. When combined
with the relatively low and severity of
claims for our underwritten drivers, the
net additional impact on the Group was
limited to £4m.
26
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Travel
Our award winning travel
business is at the heart
of the Saga brand, taking
passengers all over the
world on package holidays,
escorted tours and cruises.
Operating margin
3.45%
+0.26%
Profit before tax
excluding derivatives
£14.9m
+10.4%
Revenue
£432.0m
+2.1%
Passengers – Holidays
190k
+0.5%
Passenger days – Cruising
301k
-11.2%
Travel
This year, our multi award winning travel
business took over 211,000 customers
around the world, as well as taking home
65 awards at UK travel awards and
continuing to receive exceptionally
high levels of positive feedback from
customers. The business maintained
its trajectory of profitable growth, and is
expected to approach its stretch target
of doubling profits to £40m one year
early by the end of FY 2018. Overall,
profit before tax excluding derivatives
in travel increased by 10.4% to £14.9m
(2016: £13.5m). Our new target is to grow
profit before tax in the travel business by
four to five times over the next five years.
Tour operating
We have delivered excellent earnings
growth within our tour operating
business, with profit before tax
increasing by 32% to £11.5m (2016:
£8.7m). We continue to see a shift in the
mix of sales to longer-haul, higher-value
products, as customers look beyond
some of the more traditional holiday
destinations. This demonstrates that our
customers continue to value the security
that products such as our river cruising
and guided holidays offer – highly
differentiated and tailored for the
needs of our demographic.
The customer focused approach is key
here, and, based on deep customer
insight, we have developed four thematic
product segments that we can apply and
then tailor to the majority of our customer
base. These are: Go For It, Discover,
Unwind and Stay and Explore. By
broadening our offering within these
categories, we are also succeeding
in attracting younger, first time buyers
to the brand.
The profile of these customers tends to
be higher value, making them a natural
fit for cross-selling and our membership
scheme. Combined with the optimised
digital approach the travel business is
taking with its online offering, this
is providing a quality customer
acquisition route as part of the
Group’s wider strategy.
27
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Divisional review continued
Case study: New cruising capacity
The new ship investment has given the Cruise business
a “once in a lifetime” opportunity. Not only are we
designing and building a modern cruise ship with the
obvious benefits of latest technology and expertise but
we also have the opportunity to take a close look at our
current customer proposition to ensure it meets the
needs of both existing customers and the needs and
aspirations of future customers.
As a result, from the very outset, customers have
been central to our design and review process and
we continue to work with a panel of both current Saga
cruisers and non Saga cruisers to ensure we are on the
right track. This has made us fundamentally re-think
certain design elements, for example bar concepts,
onboard and offshore services and indeed the variety
of food and entertainment options required. At a more
detailed level our customers have identified numerous
small design details... some practical, some visual and
some just plain common sense. Internally we refer
to these as our “100 small design details, whilst
individually not significant, altogether make a huge
design statement”.
Our belief is that this process of continuous customer
input will create not only one of the most elegant and
sophisticated cruise ships afloat but also one of the
most practical and well thought out.
Trading to week ending 18 March 2017
Tour operating revenue £m
Tour operating passengers
Cruise revenue £m
Cruise passengers
2017/18
Growth
2016/17
275.9
142.6
76.0
22.1
8.2%
1.1%
8.0%
15.7%
254.9
141.1
70.4
19.1
28
Cruising
Cruising remains essential to Saga’s brand
and customer offering. Our two cruise
ships, the Saga Sapphire and Saga Pearl II,
had another good year with exceptionally
high customer satisfaction levels. We
have significantly improved the yield
management of our ships. While load
factors have reduced marginally to 82%,
we have increased the per diem rates by
8% through various value enhancements
to the cruise product offering, including
free wine with lunch and dinner, a newly
established cruise services team and other
enhancements to the customer experience.
We continued to invest in the resilience
of the cruise ships, with the scheduled
maintenance of the Saga Sapphire
during the year impacting profit by
c.£5m, as expected.
We remain very excited about the
prospects for the new ship, with the
project on track. As part of the design
project, we are undertaking significant
customer research. The results so
far have proven hugely helpful and
informative to both product and
proposition design, and will ensure
that the experience remains relevant
for customers well into the future.
The first itineraries for the new ship will
be going on sale later this year. We have
already had over 10,000 customers
register their interest in our new ship with
over 50% securing their place on the first
set of itineraries with payment of a deposit.
Indeed, these 10,000 registered customers
would equate to filling our first 12 cruises.
Current trading
Our travel business has excellent
visibility due to our customers’ propensity
to book holidays far in advance. In both
tour operating and cruising, we have
already secured the substantial majority
of our FY 2018 sales targets. Reservations
for departures in FY 2018 as at 18 March
2017 are 8% ahead of the comparable
reservation position one year ago. As
previously noted in our post-Brexit poll,
less than 1% of our customers said that
they were reconsidering their future holiday
plans as a result of the referendum result.
Cruise capacity is 5% higher year on
year, with the 63 days of Sapphire wet
dock in 2016/17 being followed by two
dry docks in 2017/18, meaning that 41
days of trading will be given to further
ship investment in 2017/18.
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Emerging
businesses
Emerging businesses
includes our personal
finance, homecare,
publishing and printing
operations as well as new
development areas for
the long-term growth
of the business.
Continuing to invest for
future growth
Saga is learning its way into three new
categories, all of which have the capacity
to contribute materially for us in future:
money, health and retirement villages.
Money: this business is made up of a
variety of products – credit cards, equity
release, savings, loans and wealth
management. The team is working on
some exciting new products for test in
2017, based on our clear understanding
of what our customers want.
Healthcare: Saga operates a number
of brands in the homecare sector, where
we look after you in your own home.
Fastest growing is Saga Healthcare,
which operates in a trial area around
Hertfordshire. During 2017, we will be
cautiously expanding the area covered
and the number of Saga customers
we serve.
Retirement villages: since 2015, we
have worked closely with Wadswick
Green in Wiltshire, helping them meet
Saga customers and explain the benefits
of dedicated village living to them.
This relationship has been mutually
successful, and we are now considering
expansion deeper into the category.
29
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Group Chief Financial Officer’s review
The strong set of results
continues to demonstrate
our ability to grow earnings
and increase dividends
whilst reducing our leverage.
I am pleased to report that the Group has delivered another strong financial performance, with profit before tax from continuing
operations 9.7% higher at £193.3m. Excluding derivatives and the one-off impact of Ogden rate change, profit before tax
increased by 5.6%. Strong cash flows have enabled us to further deleverage to 1.9x from 2.3x at the start of the year, with net
debt reducing from £547.7m to £464.8m. Based on these results and our positive expectations for the business, we are proposing
to increase our final dividend to 5.8p, leading to growth in the full year dividend of 18.1% to 8.5p per share.
Income Statement
Group Income Statement
Revenue
Trading EBITDA1
Depreciation & amortisation (excluding acquired intangibles)
Trading Profit
Non-trading costs
Amortisation of acquired intangibles
Net finance costs
Profit before tax excluding derivatives and Ogden impact
Net fair value gains/(losses) on derivatives
Ogden rate change impact
Profit before tax from continuing operations
Tax expense
Loss after tax for the year from discontinued operations
Profit after tax
Basic earnings per share:
Earnings per share from continuing operations
Earnings per share
12m to
Jan 2017
£871.3m
£246.1m
(£33.1m)
£213.0m
(£1.9m)
(£6.5m)
(£17.2m)
£187.4m
£9.9m
(£4.0m)
£193.3m
(£36.0m)
–
Growth
12m to
Jan 2016
(9.5%)
£963.2m
3.1%
£238.8m
(£27.8m)
0.9%
£211.0m
(£3.3m)
(£6.3m)
(£24.0m)
5.6%
£177.4m
(£1.2m)
–
9.7%
£176.2m
28.1%
(£28.1m)
(£6.9m)
£157.3m
11.4%
£141.2m
14.1p
14.1p
6.0%
11.0%
13.3p
12.7p
Note:
1 Earnings before interest payable, tax, depreciation and amortisation, non-trading items and fair value gains and losses on derivative financial instruments.
30
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Revenue from continuing operations decreased by 9.5% to £871.3m (2016: £963.2m), due to the accounting for the new funds-
withheld quota share agreement in motor insurance. Our total customer spend with Saga increased by 4.7% to £1,182m
(2016: £1,129m), which includes gross written premiums and insurance premium tax for all insurance policies sold.
Trading EBITDA grew by 3.1% to £246.1m (2016: £238.8m), with the current period incurring a profit impact of approximately £5m
from the scheduled Saga Sapphire maintenance. Trading Profit increased by 0.9% to £213.0m (2016: £211.0m), with depreciation
and amortisation increasing by £5.3m due to investment in the ongoing maintenance of both ships and in software. Now that the
impact of IPO expenses seen in previous years has diminished, and the amortisation of intangibles acquired with the Destinology
and Bennetts businesses has reached a steady state, profit before tax has replaced Trading Profit as the Group’s key
performance measure.
Profit before tax, excluding derivatives and the Ogden rate change impact, increased by 5.6% to £187.4m (2016: £177.4m),
benefiting from a decrease in finance costs of £6.8m as a result of high levels of cash generation enabling continued
deleveraging and a reduction in LIBOR, coupled with a £1.4m reduction in non-trading costs.
Profit before tax from continuing operations for the year was £193.3m, an increase of 9.7%, which was further impacted by
gains on derivative instruments that do not meet the criteria to qualify as hedges for accounting purposes, and a £4.0m profit
impact from the change in the Ogden discount rate from 2.5% to -0.75% that was announced by the UK Government on
27 February 2017.
Net finance costs
Finance costs in the year were £17.2m (2016: £24.0m), with the reduction due to lower interest costs on lower average borrowings,
a lower charge associated with the pension scheme and the ending of the charge associated with the unwinding of the discount
on the deferred consideration associated with Destinology.
Tax expense
The Group’s tax expense for the year was £36.0m (2016: £28.1m) representing a tax effective rate of 18.6% (2016: 15.9%).
The current year benefited from a £2.7m one-off positive impact from the utilisation under group relief rules of tax losses brought
forward from the Allied business that was disposed of on 1 December 2015. The prior year benefited from a £7.6m one-off
reduction in the tax expense due to the utilisation under group relief rules of tax losses from Acromas, which arose when Saga
was a part of the Acromas Group. Going forward the tax charge is likely to be more in line with the underlying corporation tax rate.
Earnings per share
The Group’s basic earnings per share were 14.1p (2016: 12.7p), with basic earnings per share from continuing operations for the
same period of 14.1p (2016: 13.3p).
Dividends
The Directors have proposed a final dividend of 5.8p per share, which, combined with the interim dividend of 2.7p per share, will
deliver a total dividend for the financial year ending 31 January 2017 of 8.5p per share (2016: 7.2p). This equates to a payout ratio
of 62%2 compared with the Group’s basic earnings per share from continuing operations, excluding derivatives and the Ogden
rate impact (2016: 57% excluding the one-off benefit of Acromas tax losses).
Saga offers a share alternative in the form of a dividend re-investment plan (“DRIP”) for those shareholders who wish to elect to
use their dividend payments to purchase additional Shares in the Group, rather than receive a cash payment. The last date for
shareholders to elect to participate in the DRIP will be 5 June 2017.
2 Based on profit after tax excluding derivatives and Ogden impact.
31
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Group Chief Financial Officer’s review continued
Cash flow and liquidity
The Group delivered an excellent cash flow performance in the year to 31 January 2017, achieving an available operating cash
flow of £217.6m, 88.4% of Trading EBITDA. This cash flow increased by £39.5m on the previous period, driven by a higher payout
from AICL as a result of the historical, strong underlying solvency capital position and the initial impact of the quota share on
solvency capital. The working capital outflow in the current year included the payment to Acromas for tax losses recognised
in the prior year.
Available Cash Flow
Trading EBITDA
Less Trading EBITDA relating to restricted businesses
Intra-group dividends paid by restricted businesses
Working capital and non-cash items
Capital expenditure funded with available cash
Available operating cash flow
Available operating cash flow %
12m to
Jan 2017
£246.1m
(£109.9m)
£115.0m
(£13.6m)
(£20.0m)
Growth
12m to
Jan 2016
3.1%
£238.8m
14.7%
94.9%
267.6%
(£95.8m)
£59.0m
(£3.7m)
(1.0%)
(£20.2m)
£217.6m
22.2%
£178.1m
88.4%
74.6%
Available operating cash flow reconciles to net cash flows from operating activities as follows:
Net cash flow from operating activities (reported)
Exclude cash impact of:
Trading of restricted divisions
Cash released from restricted divisions
Non-trading costs
Interest paid
Include capital expenditure funded from available cash
Exclude ‘non-operating’ interest and tax cash flows
Available operating cash flow
12m to
Jan 2017
12m to
Jan 2016
£138.5m
£150.4m
(£62.4m)
(£61.5m)
£115.0m
£5.9m
£15.6m
£74.1m
£59.0m
£13.4m
£21.6m
£32.5m
(£20.0m)
(£20.2m)
£25.0m
£15.4m
£217.6m
£178.1m
Financing
Continued strong cash flows have enabled the Group to reduce its ratio of net debt to Trading EBITDA to 1.9 from 2.3. As at
31 January 2017, net debt was £464.8m, comprising £380.0m of gross debt and £100.0m of drawn revolving credit facility, offset
by £15.2m of available cash. This compared with net debt as at 31 January 2016 of £547.7m, comprising £480.0m of gross debt
and £75.0m of drawn revolving credit facility, offset by £7.3m of available cash.
It is the Group's intention to maintain a debt ratio of between 1.5 and 2.0 up to the delivery of the first ship expected in mid-2019.
The Group is on track to reduce its debt to the lower end of this range before any debt associated with the ship is drawn down.
Pensions
Over the year, the valuation of the Group’s pension scheme has strengthened on an IAS19R basis by £5.1m to a deficit of £13.7m
(January 2016: deficit £18.8m).
Saga Scheme
Fair value of scheme assets
Present value of defined benefit obligation
Defined benefit scheme liability
12m to
Jan 2017
12m to
Jan 2016
£276.8m
£218.6m
(£290.5m)
(£237.4m)
(£13.7m)
(£18.8m)
The strengthening has been driven by a £58.2m increase in the fair value of the scheme assets to £276.8m (January 2016:
£218.6m). This was offset by an increase in the scheme liabilities of £53.1m to £290.5m (January 2016: £237.4m), driven
by a fall in corporate bond yields over the period and an increase in the expectation of the future rate of inflation.
32
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Net assets
Since 31 January 2016, total assets and liabilities have reduced by £53.3m and £160.3m respectively, increasing overall net
assets by £107.0m.
Total assets have reduced primarily as a result of a decrease in financial assets of £44.4m, which coincides with the release
of surplus solvency capital from the Group’s underwriting business.
The reduction in total liabilities reflects a £90.7m reduction in financial liabilities following the repayment of debt during the
period, enabled through continued positive cash generation and the release of surplus solvency capital. This was coupled with
an associated £61.0m reduction in gross insurance contract liabilities in line with further positive claims experience throughout
the year, and a reduction in trade and other payables of £9.1m reflecting a reduction in accruals for costs relating to the build
of the new ship and non-trading costs that were paid during the year.
Segmental performance
Revenue
Motor broking
Home broking
Other broking
Underwriting
Travel
Emerging businesses and central costs
Profit before
tax excluding
derivatives
and Ogden
impact
Motor broking
Home broking
Other broking
Underwriting
Travel
Emerging businesses and central costs
12m to
Jan 2017
£127.5m
£89.8m
£80.4m
£112.3m
£410.0m
£432.0m
£29.3m
£871.3m
£45.2m
£61.2m
£31.6m
£77.1m
£215.1m
£14.9m
(£42.6m)
£187.4m
Growth
42.5%
(0.2%)
(2.4%)
(54.8%)
(19.6%)
2.1%
(2.3%)
12m to
Jan 2016
£89.5m
£90.0m
£82.4m
£248.2m
£510.1m
£423.1m
£30.0m
(9.5%)
£963.2m
58.0%
(3.5%)
(8.4%)
(8.3%)
£28.6m
£63.4m
£34.5m
£84.1m
2.1%
£210.6m
10.4%
(8.8%)
5.6%
£13.5m
(£46.7m)
£177.4m
Total revenue for the insurance businesses decreased by 19.6% to £410.0m (2016: £510.1m), due to the accounting for the quota
share agreement in motor insurance, which required £110.5m of earned premiums ceded under the agreement to be accounted
for as a deduction from revenue. The net impact on profit of the quota share was a £1.6m cost. Travel revenue increased by 2.1%
to £432.0m, as the impact of the Saga Sapphire scheduled maintenance was more than offset by strong revenue growth in
tour operations.
The retail broking insurance business increased profit before tax by 9.1%, with a particularly strong performance in motor broking.
Underwriting profit reduced by £7.0m, as a result of reducing reserve releases and the cost of quota share. Travel increased
profits by 10.4%, even after the effect of the Sapphire scheduled maintenance, which had a profit impact of around £5m.
Emerging businesses and central costs saw an 8.8% decrease in losses before tax reflecting the reduction in finance costs.
33
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Strategic report
Group Chief Financial Officer’s review continued
Retail broking
Revenue
Gross profit
Operating
expenses
12m to Jan 2017
12m to Jan 2016
Motor
broking
Home
broking
Other
broking
Total
broking
Growth
Motor
broking
Home
broking
Other
broking
Total
broking
£127.5m
£89.8m
£80.4m £297.7m
13.7%
£89.5m
£90.0m
£82.4m £261.9m
£124.4m
£89.8m
£63.4m £277.6m
14.2%
£87.0m
£89.7m
£66.3m
£243.0m
(£79.2m)
(£28.6m)
(£31.8m)
(£139.6m)
19.8%
(£58.4m)
(£26.3m)
(£31.8m)
(£116.5m)
Profit before tax
£45.2m
£61.2m
£31.6m £138.0m
9.1%
£28.6m
£63.4m
£34.5m £126.5m
Number of policies sold:
– core
– add-ons
1,366k
1,619k
2,985k
1,254k
529k
1,783k
381k
9k
390k
3,001k
2,157k
5,158k
3.2%
6.7%
4.6%
1,238k
1,475k
2,713k
1,287k
546k
1,833k
383k
1k
384k
2,908k
2,022k
4,930k
GWP
£320.5m £155.7m £128.1m £604.3m
(3.8%)
£327.9m
£175.3m
£125.0m
£628.2m
Overall revenue from retail broking grew by 13.7% to £297.7m (2016: £261.9m), despite a competitive motor market and a home
market with limited inflation. Overall profit before tax grew by 9.1% to £138.0m (2016: £126.5m). Across each of our products,
we have balanced volume and profit to deliver this strong result.
The results for motor broking reflect the benefit of the number of initiatives that have been implemented during 2015 and 2016,
with growth in both revenue and profit before tax, which increased by £38.0m and £16.6m respectively.
The introduction of the motor panel in summer 2015 contributed £3m of additional profit in the year, with around 30% of net
premium for renewal policies now being placed with third party underwriters by the end of the year. Given the different risk profile
of drivers underwritten by external underwriters, these policies had an average gross written premium significantly higher than
those underwritten in-house, generating an additional net revenue and profit per policy. The written to earned benefit associated
with the growth in the motor panel contributed an additional £4m of profit.
Improved yield management contributed additional profit of £4m, with modest growth in Saga core motor policies being achieved
with a lower level of discounting. The full year impact of Bennetts, acquired on 1 July 2015, contributed an additional £2m profit,
coupled with £4m of further written to earned benefit largely driven by the introduction of the arrangement fee in November 2015.
In a home market with stable average customer premiums and modest claims inflation increasing net rates, we chose to maintain
volumes at a similar level, leading to consistent revenues of £89.8m (2016: £90.0m), with a small reduction in profit to £61.2m
(2016: £63.4m).
Revenue and profit before tax from other insurance lines was £80.4m and £31.6m respectively (2016: £82.4m and £34.5m),
with higher revenues from both private medical and travel insurance being offset by revenue in the prior year from the legal
services product, which was discontinued at the end of 2015, and a decrease in credit hire and repair income. Core policies
decreased slightly to 381k (2016: 383k), which was mainly due to a reduction in pet insurance policies sold. Profit was
impacted by a more challenging travel market towards the end of the year, with net rate pressure becoming prevalent
due to the depreciation of sterling.
34
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Insurance underwriting
Underwriting income statement
Revenue
Claims costs
Reserve releases
Other cost of sales
Gross profit
Operating expenses
Investment return
Quota share net cost
Profit before tax
Reported loss ratio
Expense ratio
Reported COR
Pure COR
A
B
C
D
E
F
12m to Jan 2017
12m to Jan
2016
Reported
Ogden
impact
Quota
Share Underlying
Growth
Reported
£112.3m
(£0.7m)
(£110.5m) £223.5m
(10.0%) £248.2m
(£93.9m)
–
£102.0m (£195.9m)
(11.2%)
(£220.6m)
£59.9m
(£3.1m)
–
£63.0m
(7.4%)
£68.0m
(£9.6m)
(£0.2m)
£11.8m (£21.2m)
2.4%
(£20.7m)
(£43.6m)
(£3.3m) £113.8m (£154.1m)
(11.1%)
(£173.3m)
£68.7m
(£4.0m)
(£2.8m)
£7.2m
–
–
–
–
£3.3m
£2.6m
£69.4m
(£5.4m)
(£7.5m)
£14.7m
£1.6m
(£1.6m)
(7.3%)
£74.9m
0.0%
0.7%
n/a
(£5.4m)
£14.6m
–
£73.1m
(£4.0m)
–
£77.1m
(8.3%)
£84.1m
(B+C)/A
(D+F)/A
(E+F)/A
(E+F–C)/A
30.3%
11.0%
41.3%
94.7%
59.5%
11.9%
71.4%
99.6%
(2.0%)
1.4%
(0.6%)
0.2%
61.5%
10.5%
72.0%
99.4%
Excluding the impact of the new funds-withheld quota share agreement that became effective from 1 February 2016 and the
impact of the Ogden rate change, underwriting revenue decreased by 10.0% to £223.5m (2016: £248.2m). This was due to the
introduction of the motor panel, which has resulted in the likelihood of higher-risk, higher-premium motor policies now being
underwritten by third party underwriters, and which has led to a fall in both AICL’s earned policy volumes and average earned
premiums. This in turn has resulted in lower claims costs, which, coupled with favourable claims experience, decreased by 11.2%
to £195.9m (2016: £220.6m).
Favourable experience in small and large personal injury claims enabled the business to release £63.0m of reserves held
in respect of previous accident years, £5.0m lower than the previous year.
When excluding the effect of the reserve releases and the impact of the quota share, the underwriting business delivered
a broadly stable pure combined operating ratio1 of 99.6%.
The reduced level of reserve releases, combined with the net cost of the new quota share agreement of £1.6m, for which there
was no comparable cost in the prior year, has resulted in a decrease in the profit before tax from underwriting activity to £77.1m
(2016: £84.1m). The Ogden rate change had an additional net profit impact of £4.0m, reducing the reported profit before tax from
underwriting to £73.1m.
1 The ratio of the claims costs and expenses incurred to underwrite insurance (numerator) to the revenue earned by AICL (denominator) in a given period.
Can otherwise be calculated as the sum of the loss ratio and expense ratio.
35
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Strategic report
Group Chief Financial Officer’s review continued
12m to Jan 2017
Total
Ogden rate
changes
Underlying
£59.2m
(£3.1m)
£62.3m
Growth
(6.6%)
(£0.1m)
£0.8m
–
–
£59.9m
(£3.1m)
£63.0m
(£0.1m)
(150.0%)
£0.8m
(27.3%)
(7.4%)
12m to
Jan 2016
£66.7m
£0.2m
£1.1m
£68.0m
Reserving
Reserve releases
Motor insurance
Home insurance
Other insurance
Total
Favourable claims development experience during the twelve months to 31 January 2017 has resulted in a reduction in the
reserves required in respect of prior year claims. This has been driven by the experience on large and small personal injury claims
and has enabled reserve releases totalling £63.0m during the year, offset by a £3.1m increase in prior year reserves that was
required as a result of the Ogden discount rate change. There has been no deterioration in the underlying reserve margin held
as a proportion of best estimate claims reserves year-on-year.
Analysis of insurance contract liabilities at 31 January 2017 and 31 January 2016 is as follows:
Reported claims
Incurred but not reported*
Claims handling provision
Total claims outstanding
Unearned premiums
Total**
12m to Jan 2017
Reinsurance
Assets
Net
Gross
12m to Jan 2016
Reinsurance
Assets
Net
(£70.1m)
£243.2m
£341.5m
(£70.7m)
£270.8m
(£23.7m)
£170.0m
£209.2m
(£30.9m)
£178.3m
–
£10.0m
£10.9m
–
£10.9m
(£93.8m)
£423.2m
£561.6m
(£101.6m)
£460.0m
(£3.7m)
£121.6m
£141.7m
(£4.8m)
£136.9m
(£97.5m)
£544.8m
£703.3m
(£106.4m)
£596.9m
Gross
£313.3m
£193.7m
£10.0m
£517.0m
£125.3m
£642.3m
Notes:
*
** excludes funds-withheld quota share agreement.
includes amounts for reported claims that are expected to become periodical payment orders.
The Group’s total insurance contract liabilities net of reinsurance assets have reduced by £52.1m as at 31 January 2017 from
the previous year end, driven by a £27.6m reduction in reported claims reserves, £15.3m less in unearned premium reserve
and a £8.3m reduction in IBNR claims reserves.
36
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Investment portfolio
The majority of the Group’s financial assets are held by its underwriting entity and represent premium income received and
invested to settle claims and to meet regulatory capital requirements. The maturity profile of the invested financial assets is
aligned with the expected cash outflow profile associated with the settlement of claims in the future.
The amount held in invested funds decreased by £77.9m compared with the previous year, from £624.7m as at 31 January 2016
to £546.8m as at 31 January 2017. As at 31 January 2017, 94% of the financial assets held by the Group were invested with
counterparties with a risk rating of A or above, which is up 2 percentage points on the previous year and reflects the improved
credit risk rating of the Group’s counterparties.
At 31 January 2017
Underwriting investment portfolio:
Deposits with financial institutions
Debt securities
Money market funds
Hedge funds
Loan funds
Loan notes
Unlisted equity shares
Total invested funds
Hedging derivative assets
Total financial assets
At 31 January 2016
Underwriting investment portfolio:
Deposits with financial institutions
Debt securities
Money market funds
Hedge funds
Loan funds
Loan notes
Unlisted equity shares
Total invested funds
Hedging derivative assets
Total financial assets
AAA
AA
A
Unrated
Total
£30.0m
£79.5m
£122.1m
–
–
–
–
£90.9m
£188.6m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£309.5m
£79.5m
£122.1m
£22.7m
£22.7m
£6.5m
£5.2m
£1.3m
£6.5m
£5.2m
£1.3m
£231.6m
£90.9m
£188.6m
£35.7m
£546.8m
–
£50.0m
£3.5m
–
£53.5m
£231.6m
£140.9m
£192.1m
£35.7m
£600.3m
AAA
AA
A
Unrated
Total
£30.0m
£140.3m
£243.3m
£85.2m
£75.9m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£26.7m
£19.3m
£3.8m
£0.2m
£413.6m
£85.2m
£75.9m
£26.7m
£19.3m
£3.8m
£0.2m
£191.1m
£140.3m
£243.3m
£50.0m
£624.7m
–
£10.1m
£9.9m
–
£20.0m
£191.1m
£150.4m
£253.2m
£50.0m
£644.7m
37
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Strategic report
Group Chief Financial Officer’s review continued
Solvency capital
Solvency Capital Requirement (SCR)
Available capital
Surplus
Coverage
12m to
Jan 2017
12m to
Jan 2016
£102.9m
£128.8m
£146.7m
£219.6m
£43.8m
143%
£90.8m
170%
Under Solvency II the Group had an SCR of £102.9m at 31 January 2017 (2016: £128.8m), benefiting from the claims experience
and the initial impact of the quota share agreement. Available capital was £146.7m (2016: £219.6m), giving a coverage ratio of
143% (2016: 170%). The reduction of SCR has enabled the Group to release a significant amount of capital from the underwriter.
Even with the effect of Ogden, the coverage ratio remains robust.
The following table shows a range of impacts against the base Solvency II coverage ratio:
Sensitivities
Base solvency II coverage
Interest rates +/– 1%
Equities -15%
Credit spreads 50bps
3 large losses of £10m each
143%
+5% / -6%
-2%
-4%
-4%
Travel
The travel business has had another strong year of trading. Despite having lower capacity days in Cruising due to scheduled
maintenance of the Saga Sapphire in the first half of the year, the business has achieved growth in both revenue and profit before
tax excluding derivatives, which are up 2.1% and 10.4% respectively.
12m to Jan 2017
12m to Jan 2016
Tour
operations
Cruising
Total
travel
Growth
Tour
operations
Cruising
Total
travel
Revenue
£350.1m
£81.9m
£432.0m
2.1%
£336.9m
£86.2m
£423.1m
Profit before tax excluding
derivatives
Number of holidays passengers
Number of cruise passengers
Number of cruise passenger days
£11.5m
£3.4m
£14.9m
10.4%
£8.7m
£4.8m
£13.5m
190k
n/a
n/a
n/a
21k
301k
190k
21k
301k
0.5%
(12.5%)
(11.2%)
189k
n/a
n/a
n/a
24k
339k
189k
24k
339k
The tour operations business generated a 3.9% increase in revenue to £350.1m (2016: £336.9m) from 190k passengers (2016:
189k). This reflects a continued shift in product mix towards higher value, higher margin long-haul river cruise and third party
cruise products.
Profit before tax from tour operations grew by 32.2% to £11.5m. This was due to three factors. Firstly, the increased revenue
generated greater margin. Secondly, a programme of back office redesign and cost control initiatives enabled the business to
mitigate any cost inflation and hold its operating expenses flat. Finally, the prior year included a trading loss associated with
the Bel Jou hotel that was sold on 20 July 2016. Overall profit margin improved to 3.3% (2016: 2.6%).
Saga Cruising delivered revenue of £81.9m (2016: £86.2m). The Saga Sapphire was out of operation for scheduled maintenance
for 63 days between April and June, which impacted revenue and profit by approximately £9m and £5m respectively. Offsetting
this was an improvement in yields, enabled through various value enhancements to the cruise product offering, including free
wine with lunch and dinner, a newly established cruise services team and other enhancements to the customer experience.
Profit before tax from the cruising business was £3.4m (2016: £4.8m).
38
Strategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Emerging businesses and central costs
Revenue
Gross profit
Loss before tax
12m to
Jan 2017
£29.3m
£14.3m
(£42.6m)
Growth
(2.3%)
5.1%
8.8%
12m to
Jan 2016
£30.0m
£13.6m
(£46.7m)
Revenue from emerging businesses (which includes personal finance, healthcare services, retirement villages and the media
businesses) decreased by 2.3% to £29.3m (2016: £30.0m), although these businesses delivered a 5.1% increase in gross profit
to £14.3m (2016: £13.6m).
The overall loss before tax from this segment reduced by 8.8% to £42.6m (2016: £46.7m). This was due to a reduction in finance
costs due to lower levels of debt and a decrease in LIBOR, and a reduction in the non-trading items due to IPO expenses in the
prior year, offset by an increase in operating expenses reflecting the increased level of investment in the healthcare, personal
finance and retirement villages businesses.
Financial outlook and guidance
During the year ending 31 January 2018, profits from insurance broking are expected to increase with improved yield
management, operational and marketing efficiencies and the ongoing positive impact of the motor panel.
With the strong growth in revenue on forward travel reservations combined with the additional positive effects of the efficiency
initiatives, profitability for the travel business is expected to step forward strongly year on year, primarily within the tour operating
businesses. The uplift in Cruise capacity and profit will be limited due to two dry docks taking place in the current year, leading
to 41 days when the ships are out of service.
With average net debt expected to be significantly lower year on year, finance costs are expected to reduce again in the
coming year.
Reserve releases are expected to reduce again this year and increased investments will be made in membership and our future
insurance broking platform.
Subject to market conditions remaining materially consistent, the Group is aiming to deliver ongoing consistent profit growth
this year.
While the Group’s leverage reduced significantly in the year to 31 January 2017, this benefited from the one-off move towards
a sustainable, longer term solvency ratio level and therefore the rate of leverage reduction will be lower in the coming year.
The Group is retaining the target debt range of 1.5 to 2.0 times Net Debt to Trading EBITDA, consistent with the dividend
payout ratio of 50% to 70% of net earnings.
Jonathan Hill
Group Chief Financial Officer
28 March 2017
The Strategic Report was approved by the Board and signed on its behalf by Lance Batchelor, Group Chief Executive Officer
on 28 March 2017.
39
Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Governance
Chairman’s Statement
Our internal governance
procedures must support
our strategic priorities
During our third year as a public
company, our strategic priorities for
the future have evolved (as outlined
on pages 01-39). This year is about
ensuring that our governance framework
supports growth in our businesses
and our focus on becoming even
more customer-centric, allowing our
customers to live the life they want
to lead.
The Board is structured to support the
Group with its relentless desire to put the
customer at the centre of everything it
does. Every Board decision includes
consideration of how it will affect our
customers. Details of Board activities
during the year and how the governance
structure supported key decisions (such
as the decision to build our new ship)
can be found on page 47.
The Audit, Risk, Remuneration
and Nomination Committees (the
‘Committees’) have also played an
important role in setting the strategic
direction. The Group’s risk management
processes were reviewed by the Risk
Committee, which discussed our risk
appetite and tolerance levels, and
considered how these would affect our
strategic direction. The principal risks
and uncertainties analysis played an
important part in the formulation of
the viability statement (see page 57).
The Audit Committee considered
the approach taken and the viability
statement itself (see page 42), and
provided assurance that the relevant
systems and processes were in place to
ensure that the annual report as a whole
is ‘fair, balanced and understandable’.
Key features – corporate
governance report
• An explanation of how governance
works to support our strategic
priorities whilst supporting the
Saga Way and the Saga Model.
• How performance is reviewed to
ensure that our customers and
shareholders are listened to and
remain at the heart of what we do.
• The findings of our first externally
facilitated Board and Committee
evaluation exercise.
Board discussion topics:
• How to become more
customer-centric.
• Strategy – how to grow our existing
businesses and invest for
future growth.
• Financial performance.
• How we can develop our people.
• Risk appetite.
• Brand and reputation.
40
This year is about ensuring that our
governance framework supports
growth in our businesses and our
focus on becoming even more
customer-centric, allowing our
customers to live the life they
want to lead.
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC UK Corporate Governance Code
Our governance framework is reviewed
by the Board every year against best
practice and regulatory requirements.
A summary of how we have complied
with the Code is set out overleaf. Our
approach to leadership and effectiveness
is detailed on pages 45-46 and 50-51
respectively, accountability on pages
54-57, and relations with shareholders
on page 66.
Governance continues to support our
strategic priorities in a practical way.
Having the right structure in place
means that the decisions we make
as a Board go through a rigorous
procedure, allowing for discussion at the
committees and at the Board, to enable
us to grow, continue to pay down debt
and enhance long-term returns to our
shareholders through a progressive
dividend policy.
Our shareholders and our AGM
We continue to offer a DRIP for those
shareholders who wish to turn cash
dividends into more shares. At our
second AGM at our head office in
Folkestone, Kent on 21 June 2016,
all resolutions were passed with a
significant majority and all Directors
standing for re-election were re-
appointed. I look forward to this year’s
AGM and meeting our shareholders.
I also welcome comments from
shareholders at any time.
Andrew Goodsell
Chairman
28 March 2017
Details can be found in the Audit
Committee Report on pages 58-61.
Our brand and reputation
The Board is committed to ensuring that
our brand and reputation for outstanding
levels of customer service are never
compromised. We also remain focused
on delivering the best service to our
shareholders and it is vital that our
corporate governance procedures
support our strategic direction.
Whilst there have been no changes
to the Board during the year, the
Nomination Committee did discuss
how the Company would ensure that
there is the right level of oversight of the
regulated businesses and that those
companies had senior leaders with the
right experience in place. This Committee
also considered how we manage our
talent and succession planning – for
more details see pages 52-53.
During the year, we announced that
Philip Green will resign from the Board
and his position as Senior Independent
Director on 31 March 2017, to chair
another business. He will be replaced
as Senior Independent Director by
Orna NiChionna, one of our current
Non-Executive Directors. Orna will
also become Chair of the Nomination
Committee at this point.
I’d like to thank Philip very much for his
contribution to the Board during the
Company’s first three years as a listed
business. Given the opportunity that he
has been offered, I fully understand the
rationale for his decision and wish him
continued success in the future. Orna
has extensive experience within listed
companies, sits on our Audit, Nomination
and Remuneration Committees and
chairs the Risk Committee. I am
delighted that Orna has agreed to take
over from Philip as Senior Independent
Director. She has a good feel for what we
do as a business, our values, and what’s
right for our customers, and she has
made a strong contribution during her
time on the Board.
On 22 April 2016, as a result of the share
placing undertaken by Acromas Bid Co
Limited, Non-Executive Director James
Arnell resigned from the Board. This was
in accordance with the Relationship
Agreement dated 8 May 2014 which
required his resignation once the indirect
shareholding of the Private Equity
Investor he represented ceased to exist.
We comply with the recommendation
in the UK Corporate Governance Code
2016 (the ‘Code’) that at least half of our
Board members are independent
Non-Executive Directors. For full details
of Board composition see pages 48-50.
Our people
As well as setting the strategic direction
of the Group, the Board has taken steps
to support and develop leadership and
management, recognising that our
people are core to the success of
delivery of our strategy. A key part of
our Saga People Action Plan to address
themes from Becoming the Best
employee survey and to ensure we
are embedding the Saga Way, was to
develop a Leadership Development
Programme – see page 16 for more
details. We also awarded eligible
employees with free shares for the
second year running under the 2014
Share Incentive Plan to reward their
hard work.
Board evaluation
We conducted our first externally facilitated
Board and Committee evaluation during
the year. The exercise identified that our
governance has developed well and is
sound and that there is a healthy culture
of transparency, greater strategic clarity
and good coverage of the main risks, The
experience of the Directors, combined with
a stable and strong senior management
team, means that the interests of all
stakeholders, including shareholders,
are considered, A full explanation of
the evaluation exercise can be found
on page 51.
The Remuneration Report was
approved by our shareholders at our
AGM: over 90% voted in favour. The full
Remuneration Report can be found
on pages 67-89.
41
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Compliance Statement
The Directors have considered each
of the Group’s principal risks and
uncertainties detailed on pages
20-22 and the potential impact of
these risks on the business model,
future performance, solvency and
liquidity over the period. The Directors
have made a key assumption that
it is reasonable to believe that debt
funding to replace the existing senior
bank facilities when they mature
will be available in all plausible
market conditions.
Fair, balanced and
understandable
In accordance with the principles of
the Code, the Board has established
arrangements to evaluate whether
the information presented in the
annual report is fair, balanced and
understandable. Having taken
advice from the Audit Committee,
the Board considers the annual report
and accounts, taken as a whole, are
fair, balanced and understandable
and provides the information
necessary for shareholders to
assess the Company’s position
and performance, business model
and strategy.
Going concern
The Group’s business activities,
together with the factors likely to
affect its future development and
performance, its exposure to risk
and its management of these risks,
details of its financial instruments
and derivative activities, and details
of other financial and non-financial
liabilities are described throughout
the annual report (principal risks and
uncertainties pages 20-22; Group
Chief Financial Officer’s review pages
30-39; accountability pages 54-57;
Audit Committee report pages 58-61;
Risk Committee report pages 62-65);
and notes 17, 18, 23, 24 and 25.
The Group has access to sufficient
cash and other financial resources
together with a large renewing income
stream from insurance policies and
high-repeat purchase levels from
customers of its other products, and
long-term contracts with a number of
suppliers across different industries. As
a consequence, the Directors believe
that the Group is well placed to
successfully manage its business risks.
The Directors have a reasonable
expectation that the Company has
adequate resources to continue in
operational existence for the
foreseeable future. It is therefore
appropriate to adopt the going
concern basis in preparing the
financial statements.
Assessment of risk
Through the risk cycle detailed on
pages 54-57, the Board is able to
confirm that it has carried out a
robust assessment of the principal
risks facing the Company, including
those which would threaten our
business model, future performance,
solvency or liquidity, in accordance
with section C 2.1 of the Code.
Statement of review
The risk management process
detailed on pages 54-57 was
in place for the year under review
and up to the date of approval
of this report.
The Board has conducted a review
of the effectiveness of Saga’s risk
management and internal control
systems, including all material
financial, operational and compliance
controls, and concluded that these
are acceptable.
The Board is committed to high
standards of corporate governance
and manages Saga’s operations in
accordance with the Code. A full version
of the Code can be found on the
Financial Reporting Council’s (‘FRC’)
website www.frc.org.uk. The Company
complied with all of the provisions of the
Code throughout the year.
Viability statement
The Directors have considered the
viability of the Group over the
five-year period to January 2022
and have concluded there to be
a reasonable expectation that the
Group will be able to continue in
operation and meet its liabilities
as they fall due over this period.
The Directors have determined the
five year period to January 2022 to
be an appropriate period over which
to assess the Group’s viability,
as this period:
• is consistent with the planning
horizon over which the Directors
normally consider the strategic
direction, future performance,
capital and solvency requirements
of the business;
• includes the delivery of the
contracted new ship and the
optional second ship in 2021; and
• includes the refinancing of the
senior bank facilities that mature
in April 2019.
In making this statement the Directors
have considered the resilience of the
Group, taking account of its current
position and long-term strategic plan,
the principal risks facing the business
in severe but plausible scenarios, and
the effect of any mitigating actions.
42
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC The Company applied the main principles of the Code as follows:
A. Leadership
A1 The role of the Board
The Board met formally six times
during the year. The schedule of
matters reserved for the Board was
reviewed on 20 September 2016.
There is a clear governance structure
throughout the Group, which sets out
delegated authorities.
A2 Division of responsibilities
There is a clear division of
responsibilities between the Chairman
and the Group Chief Executive
Officer. A document clarifying these
and the role of the Senior Independent
Director was reviewed and approved
by the Board on 1 November 2016.
This document is reviewed annually.
A3 The Chairman
The Chairman sets the agendas
for meetings, manages the meeting
timetable (in conjunction with the
Company Secretary) and facilitates
open and constructive dialogue
during the meetings, with particular
focus on strategic issues. The
Chairman promotes constructive
relations between Executive and
Non-Executive Directors.
A4 Non-Executive Directors
The Non-Executive Directors provide
objective, rigorous and constructive
challenge to management and meet
regularly without the Executive
Directors. The Senior Independent
Director acts as a sounding board for
the Chairman, led an evaluation on
the Chairman’s performance and
is available for meetings with
major shareholders.
B. Effectiveness
B1 The composition of the Board
The Nomination Committee is
responsible for regularly reviewing
the composition of the Board,
considering succession planning
and evaluating skills, knowledge
and experience required in
Board candidates.
B2 Appointments to the Board
The appointment of new Directors
to the Board is led by the Nomination
Committee and the process is such
that candidates are selected on merit,
and with due regard for the benefits of
diversity. Further details of the activities
of the Nomination Committee can be
found on pages 52-53.
B3 Commitment
On appointment, Directors are
notified of the time commitment
expected from them. External
directorships, which may impact on
the existing time commitments of the
Executive Directors, must be agreed
beforehand with the Chairman.
B4 Development
A tailored programme is set up when
a Director joins the Board and this is
ongoing to ensure that Directors’
skills and knowledge are regularly
updated and refreshed.
B5 Information and support
The Chairman, in conjunction with
the Company Secretary, ensures that
all Board members receive accurate
and timely information and are kept
informed on all governance matters.
B6 Evaluation
The Board conducted an externally
facilitated annual evaluation of its
own performance and that of its
Committees and individual Directors,
as set out on page 51.
B7 Re-election of Directors
All Directors are subject to
shareholder annual re-election.
C. Accountability
C1 Financial and business
reporting
The Strategic Report is set out on
pages 01-39 (inclusive) and this
provides information about the
performance of the Group, the
business model, strategy and principal
risks and uncertainties relating to the
Group’s future prospects.
C2 Risk management and
internal control
The Board sets out the Group’s
risk appetite and risk policy. The
effectiveness of the Group’s risk
management and internal control
systems is reviewed annually. The
activities of the Risk Committee,
which assists the Board with its
responsibilities in relation to the
management of risk, are summarised
on pages 62-65.
C3 Audit Committee and auditors
The Board has delegated a number
of responsibilities to the Audit
Committee, which is responsible
for overseeing the Group’s financial
reporting processes, internal controls
and the work undertaken by the
external auditors. During the year, the
Audit Committee oversaw a formal
and thorough audit tender process.
This is explained in the Audit
Committee report on page 61.
The Chairs of the Risk and Audit
Committees are Board members and
provide regular updates to the Board
regarding Committee business.
43
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Compliance Statement continued
D. Remuneration
D1 The level and components
of remuneration
The Remuneration Committee is
responsible for setting levels of
remuneration which will attract,
retain and motivate Board members.
Remuneration is structured to link
it to both corporate and individual
performance, so that management’s
interests are aligned with those of
shareholders and the long-term
success of the Company.
D2 Procedure
Details of the work of the
Remuneration Committee and
Remuneration Policy can be found in
the Directors’ Remuneration Report
on pages 67-89 (inclusive).
E. Relations with shareholders
E1 Dialogue with shareholders
The Board actively engages with
shareholders and values opportunities
to meet with them. The Chairman
has direct contact with our major
shareholders and ensures that the
Board is kept informed of shareholder
views and that all Directors are in
touch with shareholder opinion.
The Senior Independent Director
is available for meetings with major
shareholders and the Non-Executive
Directors are provided with analyst
and broker briefings.
E2 Constructive use of
general meetings
The Board see the AGM as an
important opportunity to meet with
shareholders. The Chairman and
Chairs of each Committee are
available for questions during the
formal part of the business and the
Board (and senior management) are
available after the meeting.
Details of how the Board engages
with shareholders can be found on
page 66.
44
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Leadership
A key part of our Saga People Action Plan
to address themes from Becoming the
Best employee survey and to ensure we
are embedding the Saga Way, was to
develop a Leadership Development
Programme across a range of levels across
the Group. This started with the Group
Executive and was then cascaded to their
direct reports, approximately 72 people.
The programme is made up of three
workshops, due to complete in November
2017. This investment in people is core to
the success of our strategy and our aim is
to filter this to all senior managers so that
the leadership team are aligned in how
growth is delivered. For more details,
see page 16.
All Directors, members of the Group
Executive Committee and persons
discharging managerial responsibilities
receive training on an ongoing basis, to
ensure they remain aware of regulatory
and statutory responsibilities. In addition,
all Non-Executive Directors visit business
areas so that they remain close to what
Saga does, see how strategy works in
action and how the discussion in the
boardroom translates to the front line
of the business, including our call centres
and cruise ships.
The Board of Directors
The Board is responsible for, and provides,
the overall direction for management,
debating what our strategic priorities are
and setting Saga’s values and standards.
A fundamental part of this role is
considering the balance of interests
between our shareholders, our customers,
our employees and the communities in
which we work.
• The commencement, material
expansion, diversification or cessation
of any of Saga’s activities.
• Saga’s regulatory, financial and material
operational policies.
• Changes relating to Saga’s capital,
We also provide oversight and supervision
of Saga’s operations ensuring:
• successful implementation of
agreed strategy;
• sound planning and competent
management;
• a solid system of internal control and
risk management;
• adequate accounting and other
records; and
• compliance with statutory and
regulatory obligations.
Our Board
The Board has a clearly articulated set of
matters which are specifically reserved to it
and this is reviewed annually (the last review
being 20 September 2016). These include:
• Any decision likely to have a material
impact on Saga from any perspective
including, but not limited to, financial,
operational, strategic or reputational.
• The strategic direction of the overall
business, objectives, budgets and
forecasts, levels of authority to approve
expenditure, and any material changes
to them.
corporate, management or
control structures.
• Material capital or operating expenditures,
outside pre-determined tolerances or
beyond the delegated authorities.
• Major capital projects (including post
investment reviews where not considered
in detail by the Audit or Risk Committee
or where the Board decide a full review is
required), corporate action or investment
by Saga that will have, or are likely to
have, a financial cost greater than the
amount set out in the relevant contract
approval processes from time to time.
• Any material contract or joint venture and
material arrangements with customers
or suppliers.
A review of our strategic objectives and
financial performance takes place at each
Board Meeting.
Details of the Board activities during
the year can be found
on page 47.
Board attendance during the year
The Board is scheduled to meet at least six times a year and then meets on an ad hoc basis as necessary. During the year it met
formally on six occasions. In addition, meetings were convened as necessary to approve strategic matters, and a strategy event
was held in November where annual and five year plans for each of the businesses were presented to the Board and discussed.
The Chairman meets regularly with the Senior Independent Director and Non-Executive Directors outside of the formal meetings.
Member
Andrew Goodsell
Lance Batchelor
Jonathan Hill
Role
Chairman (Leadership, Board governance, setting tone for agenda and
facilitating open Board discussions, performance and shareholder engagement)
Group Chief Executive Officer (Developing strategy for Board approval
and Group performance)
Group Chief Financial Officer (Group financial performance, including
creation of budget and five-year plans for recommendation to the Board)
Non-Executive Directors:
James Arnell1
Private Equity Investor appointed
Independent Non-Executive Directors:
Philip Green
Ray King
Bridget McIntyre
Orna NiChionna
Gareth Williams
Participate in, assess, challenge and monitor Executive Directors’ delivery
of the strategy (within risk and governance structures), financial controls and
integrity of financial statements, and Board diversity. Evaluate and appraise
the performance of Executive Directors and senior management.
Note:
1 James Arnell resigned on 22 April 2016 and attended all Board meetings prior to his resignation.
Attendance at
Board meetings
6
6
6
2
6
5
6
5
6
45
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Leadership continued
The Company Secretary attends all meetings as secretary to the Board. In addition, other executives and directors
from around the Group, and external advisers, are also invited, to provide insight into key strategic areas.
The Board’s
responsibilities
• Strategic direction of the Group.
• Leadership and management.
• Setting values and standards (in accordance with the Saga Model and
the Saga Way – see pages 10 and 16 respectively).
• Considering the needs of our shareholders, employees and customers.
• Ensuring compliance with statutory and regulatory obligations.
• Managing risk and control.
The Nomination
Committee’s
responsibilities
• Providing recommendations
on size, structure and
composition of the Board.
• Succession planning.
• Evaluating skills, knowledge,
independence and diversity
of the Board.
• Identifying and
nominating candidates
to fill Board vacancies.
• Reviewing Board
performance evaluation
results in relation to Board
composition.
The Risk Committee’s
responsibilities
• Advising on the Group’s
risk appetite, tolerance
and strategy.
• Overseeing and advising
the Board on current risk
exposures and future
risk strategy.
• Reviewing risk assessment
and management
procedures.
• Monitoring principal
business risks.
• Reviewing the adequacy
and effectiveness of risk
management systems and
the compliance function.
• Reviewing and monitoring
management response
to the Chief Risk
Officer’s findings and
recommendations.
The Audit Committee’s
responsibilities
• Monitoring the integrity
of financial statements.
• Reviewing internal and
external audit work plans.
• Monitoring and reviewing
the effectiveness of the
Internal Audit function.
• Assessing the adequacy
and effectiveness of the
Company’s internal controls
and external audits.
• Reviewing Saga’s annual
and half year financial
statements and
accounting policies.
• Considering and approving
terms of engagement
of external auditors.
• Monitoring the scope
of the annual audit and
the extent of the non-audit
work undertaken by
external auditors.
• Ensuring whistleblowing
and anti-fraud systems
are in place within Saga.
See pages 52-53
for the Nomination
Committee report.
See pages 58-61
for the Audit
Committee report.
See pages 62-65
for the Risk
Committee report.
The Remuneration
Committee’s
responsibilities
• Setting and monitoring the
Remuneration Policy for
senior executives.
• Recommending and
monitoring remuneration
packages for Executive
Directors, the Chairman
and senior management.
• Reviewing and administering
employee share schemes.
• Setting key performance
indicators for the Annual
Bonus Plan and long-term
incentives.
• Preparing an annual
remuneration report.
The Remuneration
Committee Report
is contained within the
Directors’ Remuneration
Report on pages 67-89
and is incorporated
into this Corporate
Governance Statement
by reference.
The Executive Committee
reports directly to the Board
via the Group Chief Executive
Officer and Group Chief
Financial Officer and is
responsible for:
• Implementing strategy as determined by the Board.
• Executive management – monitoring trading against strategy.
• Day to day operational management and cultural leadership
and people development.
• Managing risk and conduct.
46
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Board activities during the year
1
2
3
4
Strategy
Our Board is structured to
support becoming a more
customer-centric business
• Reviewed strategic initiatives:
• Membership.
• Brand proposition.
• Adobe Marketing Cloud.
• New holidays proposition.
• The impact of the quota share arrangement.
Customers
Every Board decision includes
consideration of how it will
affect our customers
• Discussed how to re-position our brand and
communicate brand values.
• Identified core group of (and discussed
how to look after) our HACs.
• Performance of Saga Investment Services.
• Progress of building our new ship.
• The Saga Healthcare pilot; discussed
how the business can be scaled.
• Discussed financing strategy and dividend
policy – approved change in the target
range from 40-60% to 50-70%.
• Reviewed customer engagement – identified
how we can improve our customer journeys,
and offer our customers differentiated
products, whilst maintaining outstanding
levels of service.
Shareholder engagement
Effective communication with
our shareholders
Leadership and employees
Ensuring our people are core
to the success of our strategy
and are aligned in how growth
is delivered
• Listened to our shareholders before, during
• DRIP allowed cash dividends to be turned
and after the AGM.
into shares.
• Introduced the Leadership Development
Programme, to put the Saga Way at the
centre of what we do and planned how to roll
this out to all senior management.
• Free shares awarded to eligible employees
under the Share Incentive Plan for the second
year running.
• Discussed how reward should link to
• Annual review of talent development and
performance.
succession planning.
• Acted on the results of the ‘Becoming the
Best’ employee engagement survey –
introduced better communications and
reviewed the appraisal system.
• Improved the recruitment process to help
with finding, selecting and onboarding
great Saga people.
5
Governance and risk
Governance to support
our strategy
• Reviewed our risk appetite and tolerance
• Approved the Audit Committee’s
levels/thresholds.
• Ensured our risk policy continued
recommendation to re-appoint external
auditors and sign off financial crime policies.
to meet Code requirements.
• Approved tax, environmental, health and
• Frequent business and regulatory updates
presented to the Board.
• Introduced new share dealing codes
following the introduction of the EU’s
Market Abuse Regulation.
safety and communication policies, matters
reserved for the Board and Committees’
terms of reference.
• Externally facilitated Board and Committee
evaluation exercise, which included a review
of the previous year’s action plans.
Governance in action
Becoming an ever more
customer-centric
organisation
Membership/HACs/Brand
Growing our
insurance business
Adobe Marketing Cloud/
new insurance platform
Growing our travel business
Investing for future growth
New holidays proposition/
monitoring progress
of new ship build
Saga Money/
Saga Healthcare/
Saga Retirement Villages
Developing our people
Leading the Saga Way
Detail considered by Risk
and Audit Committees
Reviewed by
Executive Committee
Built in to senior executives’
objectives (Remuneration
Committee)
Strategic discussion/
decision at Board
Communicated to
shareholders and
the market
47
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Board of Directors
3
4
1
1
2
1 Andrew Goodsell
Chairman
Skills, competencies and experience: Andrew joined Saga in 1992
as Business Development Manager, Saga Services. He became Saga
Group Business Development Director in 1995, Chief Executive of
Saga Services and Saga Investment Direct in 1999, Deputy Group
Chief Executive in 2001 and Chief Executive and Chairman in 2004.
He has led two management buyouts at Saga. The second, in 2007,
brought together Saga and the AA under the holding company Acromas
Holdings. Andrew was Executive Chairman of the AA from 2007 until
Acromas Holdings sold it in 2014; and Executive Chairman of Saga from
2007 until he became Non-Executive Chairman on 1 July 2015. Andrew
has an established track record of driving growth in the companies he
has led. His in-depth knowledge of Saga and his well-established
relationship with Saga’s regulators are invaluable to the Group.
Other roles: Andrew is also Chairman of Age UK’s Fundraising
and Development Board.
Committee membership: Nomination.
2 Lance Batchelor
Group Chief Executive Officer
Skills, competencies and experience: Lance joined Saga as Group
Chief Executive Officer in March 2014. Prior to that he was CEO of
Domino’s Pizza Group plc from 2011-2014 and CEO of Tesco Mobile
from 2008-2011. His earlier experience includes senior marketing roles
at Procter & Gamble, Amazon.com and Vodafone. Lance’s first career
was as a Royal Navy submarine officer. He holds an MBA from Harvard
Business School. Lance has worked in consumer-facing businesses
and brand-centric roles throughout his career, focusing on creating
products that are tailored to the customer. Lance also has a wealth of
senior operational experience in listed companies which he brings to
his role at Saga.
Other roles: Lance is a Trustee of the National Gallery and White
Ensign Association. He is also a Vice Patron of the Royal Navy & Royal
Marines Charity.
Committee membership: Executive.
3 Jonathan Hill
Group Chief Financial Officer
Skills, competencies and experience: Jonathan joined Saga in April
2015 from Bovis Homes Group plc where he was Group Finance
Director. Prior to that, he held various senior roles within TUI Travel
and Centrica. Jonathan qualified as a Chartered Accountant at Price
Waterhouse in London. Jonathan has experience in strategic planning
and development, and delivery of large corporate projects. He brings
this and a wealth of senior financial operational and listed company
experience to his role at Saga.
Committee membership: Executive.
4 Philip Green CBE
Senior Independent, Non-Executive Director
Skills, competencies and experience: Philip joined the Company in
May 2014, on listing. Philip was previously Chairman of Clarkson plc,
Chief Executive of United Utilities Group plc and Chief Executive of
Royal P&O Nedlloyd NV. His earlier business experience includes
serving as Chief Operating Officer of Reuters Group plc and Chief
Operating Officer of DHL for Europe and Africa. Philip was awarded a
CBE in the 2014 Queen’s Birthday Honours List. This was for services
to business and to charity in the UK and South Africa. Philip brings his
experience of running a variety of complex international organisations
and acting as an Executive and Non-Executive Director of many public
companies to the Board. Philip will retire from the Company with effect
from 31 March 2017.
Other roles: Philip is currently Chairman of Carillion plc. He is also
Chairman of BakerCorp, a US industrial services company owned by
Permira and Chairman of Corsair Infrastructure Management, based in
New York. Philip is also the UK Prime Minister’s adviser on corporate
responsibility and Chairman of Sentebale, a charity set up by HRH
Prince Harry.
Committee membership: Nomination (Chair), Audit, Remuneration
and Risk.
48
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC 5
6
7
8
5 Ray King
Independent Non-Executive Director
Skills, competencies and experience: Ray joined the Company in
May 2014, on listing. Previously, Ray was Chief Executive of Bupa from
2008-2012, after serving as Group Finance Director from 2001-2008.
Before Bupa, Ray was a Non-Executive Director of Friends Provident plc,
Deputy Chief Executive of Parity Group plc, Director of Group Finance and
Control at Diageo plc and Group Finance Director of Southern Water plc.
In 2015, Ray resigned as a Reporting Panel Member of the Competition
and Markets Authority and as a Non-Executive Director of Infinis Energy
Plc. Ray’s financial experience, his detailed knowledge of regulatory and
compliance requirements and experience of running a business similar
to Saga, and his Non-Executive Director experiences (including that of
chairing audit committees) are all immensely helpful to the Board.
Other roles: Ray is currently Chairman of Rothesay Holdco UK Ltd and of its
regulated subsidiary, Rothesay Life plc. He is also a Non-Executive Director
of the Financial Reporting Council where he is a member of the Codes and
Standards Committee and chairs the Audit and Assurance Council.
Committee membership: Audit (Chair), Nomination, Remuneration
and Risk.
7 Orna NiChionna
Independent Non-Executive Director
Skills, competencies and experience: Orna joined the Company in May
2014, on listing. Previously, Orna was Senior Independent Non-Executive
Director of HMV plc, Northern Foods plc and Bupa and a Non-Executive
Director of the Bank of Ireland UK Holdings plc and Bristol & West plc. She
was a former Partner at McKinsey & Company, where her client portfolio
included many consumer facing clients. Orna has significant experience in
strategy and new concept development and launch, business turnaround,
logistics redesign and supply change management. She brings these skills
to the Board along with her considerable experience in other Non-
Executive Director roles. Orna will assume the position of Senior
Independent Director and Chair of the Nomination Committee of the
Company with effect from 31 March 2017.
Other roles: Orna is currently Senior Independent Non-Executive Director
and Chair of the remuneration committee of Royal Mail plc. Orna is also
currently the Deputy Chair of the National Trust, Trustee of Sir John
Soane’s Museum and Chair of Client Service at Eden McCallum.
Committee membership: Risk (Chair), Audit, Nomination
and Remuneration.
6 Bridget McIntyre
Independent Non-Executive Director
Skills, competencies and experience: Bridget joined the Board in
January 2016. Bridget was previously Chief Executive of the RSA
UK business and a Director of RSA Insurance Group plc having held
senior roles at Aviva (and pre-merger Norwich Union). Bridget is an
associate of the Chartered Institute of Management. In addition
to her extensive insurance experience, Bridget has a strong
understanding of how retail businesses work and a track record in
improving business performance. She also brings considerable general
and financial management experience to the Board. Bridget was recently
appointed Senior Independent Director of Saga Services Limited.
Other roles: Bridget is currently a Non-Executive Director and Chair of the
Audit Committee of Adnams plc, Director of Jarrold & Sons Limited and is
founder of her own social enterprise organisation ‘Dream On’, a Suffolk-
based community interest company focused on improving the lives of
women. She is also a Trustee of The Health Foundation, where she chairs
the Audit and Risk Committee, and a Trustee of The Blossom Charity.
Committee membership: Audit, Nomination, Remuneration and Risk.
8 Gareth Williams
Independent Non-Executive Director
Skills, competencies and experience: Gareth joined the Company
in May 2014, on listing. Previously, Gareth was Human Resources
Director of Diageo plc (where he also had oversight responsibility
for corporate relations) and held a series of key positions in human
resources at Grand Metropolitan plc. Gareth’s contributions to the
Board are on all aspects of human resources and people strategy
and this, combined with his experience of working at Director level
in a consumer facing organisation and his knowledge of corporate
relations, management development and resourcing, brings a unique
perspective to discussions with the Board and its Committees.
Other roles: Gareth is currently Chairman of YSC Limited and a
Non-Executive Director of WNS (Holdings) Limited.
Committee membership: Remuneration (Chair), Audit, Nomination
and Risk.
49
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Effectiveness
The members of the Board
The Board considers its overall size
and composition to be appropriate,
having regard in particular to the
independence of character, integrity,
differences of approach and experience
of all the Directors. We give due regard
to the benefits of diversity in its widest
sense for the current and future Board
composition, recognising that this is
essential for effective engagement with
our key stakeholders.
We consider that the skills and
experience of our individual members,
particularly in the areas of insurance,
financial services, consumer services,
brand management, corporate finance,
mergers and acquisitions, and risk
management, are fundamental to the
pursuit of our strategic objectives.
In addition, the quoted company
experience of members of the Board
in a variety of sectors and markets
is invaluable to Saga.
Composition of Board
1 Chairman 1
2 Executive Directors 2
3 Non-Executive Directors 5
1
2
3
Independence of Non-Executive
Directors
The Board considers five of the Non-
Executive Directors to be independent of
Saga’s executive management and free
from any business or other relationships
that could materially interfere with the
exercise of their independent judgement.
These Directors are Philip Green,
Ray King, Bridget McIntyre, Orna
NiChionna and Gareth Williams. Philip
will be resigning from the Company
on 31 March 2017, as detailed below.
Changes to the Board
Whilst we did not make any
appointments to the Board during the
year, the Nomination Committee did
discuss how the Company would ensure
that there is the right level of oversight
of the regulated businesses within the
Group and that those companies had
senior leaders with the right experience
in place. More details can be found in
the Nomination Committee report on
pages 52-53.
During the year, we announced that
Philip Green will resign from the Board
and his position as Senior Independent
Director on 31 March 2017, to chair
another business. He will be replaced
as Senior Independent Director by
Orna NiChionna, one of our current
Non-Executive Directors. Philip and
Orna both joined the Board during the
Company’s IPO in 2014.
Orna was selected as the replacement
Senior Independent Director due to her
experience (as Senior Independent
Non-Executive Director and Chair of the
Remuneration Committee of Royal Mail
plc, Chair of client service at Eden
McCallum, and Deputy Chair of the
National Trust) and within the Group.
She sits on our Audit, Nomination and
Remuneration committees and chairs
the Risk Committee. The Board was of
the opinion that Orna has a good feel for
what we do as a business, our values,
and what's right for our customers, and
has made a strong contribution during
her time on the Board.
On 22 April 2016, as a result of the share
placing undertaken by Acromas Bid Co
Limited, Non-Executive Director James
Arnell resigned from the Board. This
was in accordance with the Relationship
Agreement dated 8 May 2014 which
required his resignation once the indirect
shareholding of the Private Equity
Investor he represented fell below 10%.
We continue to comply with the Code’s
recommendation that at least half of
our Board members are independent
Non-Executive Directors. For full details
of Board composition see pages 48-50.
Appointment of Directors
Our Nomination Committee terms
of reference explain how we recruit and
appoint Directors to the Board. We will
use open advertising or the services of
external advisers to facilitate our search
for the best possible candidates
from a wide range of backgrounds,
as appropriate.
Ongoing training and induction
of Non-Executive Directors
All Non-Executive Directors attended
meetings with senior management
and subsidiary directors and strategy
sessions for each of our businesses
to understand the short and long-term
50
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC goals of the Group. They continue to
visit all areas of the business to gain
first-hand experience of how Saga
works, including listening to calls
during visits to our call centres.
Our induction process was reviewed to
ensure that it will serve to familiarise new
Directors with our strategy, competitive
and industry environment, Group
structure, governance and risk profile/
appetite and provide for meetings with
key members of senior management.
Board effectiveness review
The Board and its Committees
undertook their first externally facilitated
evaluation of their performance during
the year. The evaluation was conducted
by Independent Audit Limited.
Independent Audit Limited does not have
any other connection to the Company.
Independent Audit Limited’s review
consisted of a review of Board and
Committee papers, observation of Board
and Committee meetings, and interviews
were held with Directors/Committee
members and attendees to give them
an opportunity to express their views
about questions such as:
• whether the Board gets what it needs
to facilitate a well-structured and
focused discussion;
• how well the Board agenda and
discussion is focused on strategy
and the main market and
competitive challenges;
• how the Board gets a picture of how
our culture and risk are embedded;
• the line of sight Non-Executive
Directors have into the way in which
the Group is run and controlled;
• steps taken to develop a strong
management team through
succession planning and talent
management;
• organisation of meetings, including
agenda setting, time spent on each
item and quality of papers; and
• corporate governance and regulatory
compliance support.
A report prepared by Independent
Audit Limited was presented to the
Board. As a result of this in-depth
discussion, a board development plan
was agreed and discussed further with
Independent Audit Limited.
The review concluded that governance
had developed well since the Company
Process for Board and Committee evaluation
Face to face meetings held to facilitate an
open discussion between Independent Audit Limited
and Directors/meeting attendees
Reports produced by
Independent Audit Limited
Review/discussion with Chairman and Committee Chairs
Discussed at Board
Action plans
had listed. Strengths identified included
a stable and strong senior management
team, a healthy culture of transparency,
and a consistent and concerted effort
to communicate openly with the
Non-Executive Directors. There was
good coverage of the principal risks and
subsidiary level governance worked
well, with appropriate escalation when
necessary. Interests of a wide group of
stakeholders, including shareholders,
was considered and a lot of weight and
attention was given to the ‘people
strategy’ of the Group. It was now time
for the Board to focus on successful
execution of Group strategy.
Board development plan for 2017/18
Looking ahead, the Board will continue
to work on ensuring that the content
of all Board meetings remains aligned
to strategy and the key drivers of
performance. Risk management will
continue to link directly to strategic
drivers, principal risks and uncertainties.
The pre-read papers and time allocated
for discussion at each Board will support
this approach and will include forward
thinking analysis, where appropriate.
The results of the evaluation of the
Chairman’s performance were also
considered by the Senior Independent
Director and the Non-Executive Directors
and were discussed with the Chairman.
Annual re-election
The Directors are standing for re-election
at the AGM, with the exception of Philip
Green, who is resigning on 31 March
2017. Our view is that each of the
Directors standing for re-election should
be appointed, as we believe that they
have the skills required for the Board to
discharge its responsibilities, as outlined
in each of their biographies set out on
pages 48-49.
51
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Nomination Committee Report
Nomination
Committee
Dear Shareholder,
This year we have focused on
ensuring that there was a structure
in place that enabled appropriate
challenge, checks and balances
throughout the Group.
It was important that we had
confidence that we have the right
people in senior roles, with the
appropriate skill set and that the
appropriate strategic and operational
discussions were taking place. We
have held a number of unscheduled
meetings to discuss how best to have
a balanced Board and Executive
Team that work well together and
to identify how best to develop our
Executive Team.
Philip Green
Chair, Nomination Committee
Role of the Committee
Our role is to review Board composition,
consider succession planning and
evaluate skills required in Board
candidates.
Committee members consist of five
independent Non-Executive Directors
and the Chairman.
Attendance
During the year, the Committee met on
five occasions.
Member
Attendance
Philip Green (Chair)
Andrew Goodsell
Ray King
Bridget McIntyre
Orna NiChionna
Gareth Williams
5
5
5
5
5
5
The Company Secretary attends all
meetings as secretary to the Committee.
In addition, the Group Chief Executive
Officer and Group HR Director attend
by invitation.
Our remit
• Regularly reviewing the structure,
size and composition (including the
skills, knowledge, independence,
experience and diversity) of the
Board and making recommendations
with regard to any changes.
• Giving full consideration to
succession planning for Directors
and other senior executives, to
ensure progressive refreshing
of the Board.
• Evaluating the balance of skills,
knowledge, independence,
experience and diversity on
the Board and, in light of this
evaluation, preparing a description
of the role and capabilities required
for a particular appointment and its
expected time commitment.
• Reviewing the results of the Board
performance evaluation process
that relate to the composition
of the Board.
Time spent on matters
1 Board composition 22%
2 Succession planning 40%
3 Board skills 13%
4 Board evaluation 25%
4
1
3
2
Our terms of reference
Our terms of reference were reviewed
by the Committee and subsequently
approved by the Board on 20 September
2016. These explain our role and the
authority delegated by the Board and
are available on the Saga website at
http://corporate.saga.co.uk/corporate-
information/corporate-governance and
from the Company Secretary at Saga’s
registered office.
What we have done during the year
Board composition
At the centre of our remit is a detailed
understanding of the Board’s and the
Board Committees’ structure, size and
composition. Changes to the Board
composition throughout the year are
explained in the Effectiveness section
of the Corporate Governance Statement
on pages 50-51.
The ‘Division of responsibilities between
Chairman, Group Chief Executive Officer
and Role of Senior Independent Director’
document was reviewed and approved
by the Board on 1 November 2016.
52
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Effectiveness of the Nomination
Committee
Evaluation
An external evaluation of the
Committee’s effectiveness took place
during the year, as part of the Board
effectiveness review (for details see page
51). This was completed by Independent
Audit Limited. The review indicated that
the Committee is working well in
addressing the main issues it is having to
cover and is taking a thorough approach
to Director performance evaluation and
succession planning.
Looking ahead, we will continue to
respond to any issues that may arise
during 2017 and will continue to identify
our future talent pipeline, to ensure that
the structure, size and composition.
(including the skills, knowledge,
independence and experience and
diversity) of the Board is right, conducting
skills gap analysis where necessary.
Philip Green
Chair, Nomination Committee
On 19 December 2016, the Company
announced my resignation from the
Board and my position as Senior
Independent Director with effect from
31 March 2017. Orna NiChionna will
assume the position of Senior
Independent Director and Chair
of the Committee at this time.
Whilst we did not make any
appointments to the Board during the
year, we did discuss how the Company
would ensure that there is the right level
of oversight of the regulated businesses
and that those companies had senior
leaders with the right experience in
place. We concluded that it was
Important to have the right governance,
leadership and independence for such
roles. As a result of this discussion,
Bridget McIntyre was appointed as
Senior Independent Director for Saga
Services Limited on 22 March 2017.
Appointment of Directors
Our terms of reference explain how
we recruit and appoint Directors to the
Board. We will use open advertising
or the services of external advisers to
facilitate our search for the best possible
candidates from a wide range of
backgrounds, as appropriate.
Russell Reynolds Associates were
approved as our search consultants
and will map candidates against skills
sets identified. Russell Reynolds
Associates has no other connection
with the Company.
An overview of the Director induction
process has been included in the
Effectiveness section of the Corporate
Governance Statement on pages 50-51.
Diversity
We continue to believe that it is in the
very nature of Saga to recognise the
benefits that diversity brings. Our policy
is to appoint the best possible candidate,
considered on merit and against
objective criteria (and in accordance with
the Equality Act 2010), rather than to set
quotas for a particular aspect that may
deflect from achieving this fundamental
target every time. At the date of this
report, 25% of the Board is female.
During the year, we agreed to refer
to Chair rather than Chairman for all
Committee Chairs.
Succession planning and talent
management
The future directional structure of the
executive team was a focal point in light
of Andrew Strong’s retirement at the end
of the financial year and to strengthen
the customer facing areas of the
business – important due to the focus
on customer-centricity.
We reviewed succession planning, noted
short and long-term caretakers for each
senior role and focused on removing key
areas of vulnerability, executive team
development and overall leadership
development.
A framework for reviewing talent within
the Group was put in place following an
extensive talent mapping exercise. Whilst
home-grown talent and external hires
provide a strong skill base, a need
to focus on leadership training was
identified, to support the changes
required within the Group. A leadership
programme was developed to tailor
training needs to individuals. Senior
individuals were also encouraged to
take on additional roles (in line with
the One Saga approach outlined on
page 17) and were invited to present
to Committee and Board meetings.
53
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Accountability
Risk management and internal control
Saga plc Board
Top down:
– Group risk policy
and strategy
– Group risk appetite
– Principal risk oversight
– Group compliance
oversight
Group CEO
Group Risk
Committee
Business
board
Business
Executive
Committee
Business Risk
Committee
Business Audit,
Risk and
Compliance
Committee
Bottom up:
– Business risk appetite
definition and policy
– Identification, assessment
and mitigation of
business – specific risks
– Upward reporting of key
residual risks
Board assessment of risk
management and internal control
The Board has ultimate responsibility
for the Group’s risk management and
internal control, including setting of
risk appetite. In accordance with
section C 2.3 of the Code the Board
is responsible for reviewing the
effectiveness of risk management
and control systems, specifically that:
• There is an ongoing systemised
process for identifying, evaluating and
managing the principal risks faced by
the Company.
• This system has been in place for the
year under review and up to the date
of approval of the annual report and
accounts.
• The system is regularly reviewed by
the Board.
• The system accords with the FRC
guidance on risk management, internal
control and related financial and
business reporting.
During 2016 the Board has directly, or
through delegated authority to the Risk
and Audit Committees, overseen and
reviewed the development and
performance of risk management
activities and practices and internal
control systems in the Group. Specific
details regarding the Risk and Audit
Committees’ involvement in the
development and review of risk
management and internal control
systems are provided in the Risk and
Audit Committee reports on pages
62-65 and 58-61 respectively.
As a result of its consideration and
contribution to risk management and
internal control activities, the Board is
satisfied that the risk management
and internal control systems in place
remain effective.
54
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Saga’s ‘three lines of defence’ risk governance
model
Governing body/Board/Audit Committee
Senior management
1st line of
defence
2nd line of
defence
3rd line of
defence
Management
controls
Internal control
measures
Financial control
Security
Risk management
Compliance
Health and safety
Internal
Audit
E
x
t
e
r
n
a
l
A
u
d
i
t
R
e
g
u
l
a
t
o
r
Group risk management cycle
Group Strategy
Group risk appetite
Business-specific
risk appetites
Group risk policy
Group Strategy
Independent
policies
assurance
Risk assessment
Risk review
Risk review
Risk Management and control is
achieved through application of the
‘three lines of defence’ model as follows:
1st line of defence – Risk taking by
management, in line with agreed risk
appetite, risk policies and procedures.
Various governance forums in each
business review all risk exposures and
risk mitigation activities on a regular
basis, supported by the 2nd line
of defence oversight functions.
Consideration of business risks is a
standing agenda item at each executive
meeting within the Group.
2nd line of defence – Independent
oversight provided by the various control
functions, including risk, compliance and
health and safety. Specific duties include
advice on Group and business risk
appetites, independent review of both
the rating of key risks, and approach and
adequacy of business risk management
strategies. The 2nd line of defence is
also responsible for reporting on the
management of principal risks and
uncertainties to the Risk Committee
and Board.
3rd line of defence – Independent
assurance on the operation and
effectiveness of internal control
throughout the Group, including
consideration of the effectiveness of the
risk management process. The 3rd line
of defence reports to the Board by way
of the Audit Committee.
Saga’s spread and variety of business
operations require risk and internal
control issues to be considered at both
specialist business level and aggregated
Group level. Risk and internal control
oversight is provided at all Committees
and key concerns are raised to the Audit
and Risk Committees and ultimately to
the Board if required.
The financial crime, data and information
security committee provides an
additional forum to consider specialist
risks arising in these areas.
55
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Governance
Accountability continued
Risk management cycle
The Group risk management cycle is an
iterative cycle of activities, comprising
the following:
Identification of risk appetite
Saga defines risk appetite as the amount
and sources of risk which we are willing
to accept in aggregate in pursuit of our
objectives. Group risk appetite is derived
from our strategic objectives and is used
as a measure against which all of our
current and proposed activities are
tested. Group risk appetites and
tolerances are further defined within the
Principal risks and uncertainties section
(pages 20-22).
Business risk appetites are separately
crafted, complementary to Group
appetites but customised to reflect the
specific needs and characteristics of
each business. Business risk appetites
may be different to Group appetites but
cannot exceed them.
Group and business risk appetites are
reviewed at least annually to ensure that
they are aligned with any changes in
strategy or specific strategic initiatives.
Risk policies
Saga has a Group risk policy,
defining our risk management strategy,
framework, governance structures,
and detailed assessment and mitigation
processes. Beneath this Group
document, individual business policies
are created, customised to reflect
specific business characteristics but
still consistent with the overall risk
management framework. All risk policies
are reviewed at least annually and
approved at business or Group boards
as appropriate.
Risk assessment and risk registers
All Saga businesses assess each risk
for likelihood and impact. Most use
a common risk assessment matrix,
although several have a customised
impact scale to reflect their size or the
highly specialist nature of their risks
Each business then creates appropriate
controls to manage such risks. Risks
are rated on both an inherent and a
residual basis and are rated on a red,
amber, yellow and green scale. Risk
assessments are reviewed at business
risk committees and the principal risks
are subject to independent review by the
Risk Committee. Explicit consideration
is also given as to whether risks lie
within or outside of risk appetite. Any
risk close to appetite limits on a residual
basis is further examined to ensure
that our desired risk/reward balance
is maintained.
Risk registers have been created
for each business to capture their key
risks, associated controls and incidents.
These registers are typically sub-divided
by function or business area. The highest
rated residual risks in terms of impact
and probability for each business are
aggregated at Group level to produce
a list of principal risks and uncertainties,
assessed at residual level against Group
risk appetite.
All business CEOs certified compliance
with the risk management framework at
the year end.
Risk review
Reports on key risks and controls,
and incidents, are presented to each
governance forum meeting specified in
the Committee structure, flow of risk,
compliance and internal control
information chart on page 54. In
addition, checks against control
effectiveness, and any exceptions or
overdue actions are also considered.
Each of these governance meetings
is attended by key 1st and 2nd line of
defence managers and the actions are
minuted and followed up at the next
meeting. Significant control weaknesses
or failures are escalated to the individual
business board in question or, if of
sufficient scale and seriousness, to
the Risk Committee. Each Group risk
committee also considers cross-Group
risks and incidents to ensure the risk
of contagion is minimised.
Risk oversight
Independent oversight of the risk
management process, including key
risks and their associated management,
incidents and compliance, is provided by
the Chief Risk Officer and the risk team,
the compliance team, the Risk
Committee and, ultimately, the Board.
Risk monitoring
All risk registers are independently
reviewed by the risk team on an ongoing
basis to test for completeness of risk and
control capture, effective testing of key
control measures, and recording and
reporting of any exceptions and overdue
actions.
Risk information
All risk data, including risks, controls,
control tests and incidents, is captured
in an internet-enabled risk portal. This
portal produces risk reports for all
governance meetings.
Independent process assurance
Saga’s internal audit function (‘Internal
Audit’) provides independent assurance
of the effectiveness of the risk
management procedures at both Group
and business levels.
Process feedback
Outputs from the risk management
cycle are fed back to the Risk Committee
to assist with necessary revision of the
Group risk management policy and
framework. They may also be used
to inform future iterations of the
Group’s strategy.
A statement confirming that the Board
is able to confirm that they have carried
out a robust assessment of risks is
contained on page 42.
Internal control
Internal Audit acts as the 3rd line of
defence within Saga’s three lines of
defence risk management framework.
The objective of Internal Audit is to
help protect the assets, reputation
and sustainability of the organisation by
providing independent, reliable, valued
and timely assurance to the Board and
executive management. To preserve
the independence of Internal Audit,
the Head of Internal Audit’s primary
reporting line is to the Chair of the Audit
Committee, and the Internal Audit team
is prohibited from performing operational
duties for the business.
All activities of the Group fall within the
scope of Internal Audit’s remit and there
are no restrictions on the scope of
Internal Audit’s work. Internal Audit fulfils
its role and responsibilities by delivering
the annual, risk-based audit plan. Each
56
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC audit within the plan provides an opinion
on the control environment and details
of issues found. Internal Audit works
with the businesses to agree remedial
actions necessary to improve the control
environment, and these are tracked
to completion.
The Head of Internal Audit submits
reports to, and/or attends, Board and
Audit Committee meetings for the
subsidiary Saga businesses, as well
as the Audit Committee meetings.
Financial reporting
The Group maintains a control
environment that is regularly reviewed
by the Board. The principal elements
of the control environment include
comprehensive management and
financial reporting systems and
processes, defined operating controls
and authorisation limits, regular Board
meetings, clear subsidiary board and
operating structures, and an Internal
Audit function.
The Group has an established and well-
understood management structure with
documented levels for the authorisation
of business transactions and clear bank
mandates to control the approval of
payments. Control of the Group’s cash
resources is operated by a centralised
Treasury function.
Internal management reporting and
external statutory reporting timetables
and delivery requirements are well
established and documented. Control
of these is maintained centrally and
communicated regularly.
The Group maintains computer systems
to record and consolidate all of its
financial transactions. These ledger
systems are used to produce the
information for the monthly management
accounts, and for the annual statutory
financial statements. The trading
subsidiaries within the Group prepare
their accounts under Financial Reporting
Standard (‘FRS’) 101.
Internal control and risk management
systems relating to the financial reporting
process and the process for preparing
consolidated accounts ensure the
accuracy and timeliness of internal
and external financial reporting.
The accounts production process
ensures that there is a clear audit trail
from the output of the Group’s financial
reporting systems, through the
conversion and consolidation processes,
to the Group’s financial statements.
The Group undertakes an annual
strategy process which updates the plan
for the next five years, and produces a
detailed budget for the next financial
year. Throughout each year, detailed
reforecasts are performed by each area
of the Group each month and are
consolidated to provide an updated view
of expected performance for the current
year. Each reforecast covers the income
statement, cash flow and balance sheet
positions phased on a monthly basis
through to the end of the financial year.
Regular weekly and monthly reporting
cycles allow management to assess
performance, and identify risks and
opportunities at the earliest opportunity.
Trading performance is formally reviewed
on a weekly basis by the management
of the trading subsidiaries, and monthly
by the management of the Group.
Performance is reported to the Board
at each Board meeting. Performance
is assessed against budget and against
the latest forecast expectations.
Viability statement
An assessment period of five years
was selected. This is consistent
with our long-term financial planning
horizon and importantly it embraces
the construction of our new cruise
ship which will become operational
in 2019 and the option to purchase
a second ship that would become
operational in 2021.
Our list of principal risks and
uncertainties (‘PRUs’) derived from
our robust review of risks was reviewed
with risk owners, Group Finance and
Group Risk to consider which risks might
threaten the Group’s ongoing viability
and the achievement of its strategic plan.
These PRUs are given in the Strategic
Report on pages 20-22. All of the PRUs
have been considered and severe but
plausible outcomes for each have been
identified. The financial impact in terms
of both profit and cash of each outcome
has been quantified and a probability of
occurrence assigned to it. Assessments
of potential financial impact were derived
from both internal calculation and
examples of similar incidents in the
public domain.
The three largest sensitivities in terms
of financial impact were identified as
the following:
1. The cumulative impact of a repeated
failure of management to deliver
change, operational efficiencies, and
supplier and pricing initiatives in the
Group’s largest insurance broker,
Saga Services Limited.
2. A severe one-off data breach.
3. Impact on AICL’s investment
portfolio due to default of the
largest credit institution.
Three scenarios were then modelled
for the assessment period: the three
largest sensitivities in terms of financial
impact as if each were certain to occur
independently; the expected financial
impact for all sensitivities combined
drawing on the assigned probability
for each one; and a reverse stress test
considering what PRU, or combination
of PRUs might lead to breach of
performance and cash flow
solvency thresholds.
The outcome of this modelling confirmed
that none of the top three sensitivities
would compromise the Group’s viability
either in isolation or in combination.
The reverse stress test demonstrated
that the likelihood of one or any
combination of PRUs causing us to
breach performance and insolvency
thresholds was extremely remote.
As set out in the Audit Committee report
on pages 58-61, the Directors have
reviewed and discussed the rationale
and conclusions of management’s
viability testing. The Directors’ viability
statement is contained on page 42.
Statement of review
The Board’s statement of review
of the effectiveness of Saga’s risk
management and internal control
systems is contained on page 42.
57
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Audit Committee Report
Audit
Committee
Dear Shareholder,
I am pleased to report on the Audit
Committee’s activities during the year
to January 2017.
This has been another busy year in
Saga, as the Group continues to
develop its business processes to
deliver growth and improvements in
efficiency. A key part of our job as a
Committee is to provide assurance
that our internal controls remain
strong as the Group develops and
also to seek continuous improvement.
Our deliberations have continued to
benefit from significant stability since
the IPO in the membership of the
Committee and in the senior
leadership team, including the heads
of key control functions; I thank them
for their contribution to our work.
Ray King
Chair, Audit Committee
Role of the Committee
Our role is to monitor the integrity of the
financial statements of the Group, review
and report to the Board on significant
financial reporting issues and
judgements, and review and assess
the adequacy and effectiveness of the
Company’s internal financial controls
and other internal control systems.
All members are independent Non-
Executive Directors. The Board is
satisfied that I have recent and relevant
financial experience and that the
Committee as a whole has competence
relevant to the sector in which the
Company operates.
Attendance
During the year, the Audit Committee
met on five occasions.
Member
Ray King (Chair)
Philip Green
Bridget McIntyre
Orna NiChionna
Gareth Williams
Attendance
5
5
4
5
5
The Company Secretary acts as
secretary to the Committee and attends
all meetings. In addition, the Chairman,
Group Chief Executive Officer, Group
Chief Financial Officer, Group Financial
Controller, Chief Risk Officer, Head of
Internal Audit and representatives from
our external auditors attend by invitation.
During the year, the Committee held
private meetings with the external
auditors and Head of Internal Audit; I also
had regular update meetings with them.
Our remit
• Monitoring the integrity of financial
statements of the Company
and providing an opinion to the
Board that the annual report
and accounts, taken as a whole, is
fair balanced and understandable.
• Reviewing and reporting to the
Board on significant financial
reporting issues and judgements.
• Reviewing and assessing the
adequacy and effectiveness of the
Company’s internal financial
controls and other internal control
systems (including, but not limited
to, whistleblowing, fraud detection
and the prevention of bribery).
• Approving the Internal Audit
charter, budget and work plan
and receiving regular reports.
• Monitoring and reviewing the
effectiveness of the Company’s
Internal Audit function, in the
context of the Company’s overall
risk management system.
• Receiving reports from the audit
committees of subsidiaries.
• Considering and making
recommendations to the Board in
relation to the appointment and
re-appointment of the Company’s
external auditors, their remuneration
and the services they provide.
• Ensuring that at least once every
10 years the audit services contract
is put out to tender.
• Monitoring, reviewing and
assessing the external auditors’
independence of and effectiveness
and reviewing the external audit
work plan.
• Reviewing the findings of the audit
with the external auditors.
Time spent on matters
1 Financial statements 15%
Internal financial controls 19%
2
3
Internal Audit 25%
4 Business reviews 17%
5 External audit 24%
5
4
1
2
3
58
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC During the year we received
presentations (focusing mainly on
internal control) from the following
business areas:
Saga Services/Direct Choice
(regulated businesses)
We received an update on activities
from the independent Non-Executive
Director who chairs the Saga
Services audit committee. This
covered the work undertaken by
Internal Audit, the compliance
monitoring programme, the conduct
risk framework and steps taken to
address the threat of cybercrime.
Saga Money
Areas of focus included the product
portfolio (particularly the innovative
products for equity release, share
dealing and retirement income) and
the governance structure to ensure
the appropriate level of oversight
and a sufficient level of transparency
were in place for Saga Investment
Services Limited, the joint venture
with Tilney BestInvest. The chair of
the audit committee for this business
confirmed that no major issues were
identified during that committee’s
reviews of the first and second
lines of defence or conflicts
of interest process.
AICL
We received feedback from the chair
of AICL’s audit committee and the
Chief Executive Officer of this business.
We also reviewed the management
process for examining reserving
assumptions and considered the
regulatory environment in Gibraltar,
ongoing requirements of Solvency II
capital requirements and possible
impact of a change in the Ogden
discount rate.
Our terms of reference
Our terms of reference were reviewed
by the Committee and subsequently
approved by the Board on 20 September
2016. These explain our role and the
authority delegated to us by the Board
and are available on the Saga website
at http://corporate.saga.co.uk/corporate-
information/corporate-governance and
from the Company Secretary at Saga’s
registered office.
What we have done during the year
Internal Audit
• Approved the Internal Audit Charter,
received regular reports on the work
of the Internal Audit function during the
year, considered resourcing within the
Internal Audit team and approved the
work plans for 2017/18.
• Engaged KPMG to carry out a review
of the effectiveness of the Internal
Audit function (in line with the
Chartered Institute of Internal Auditors
(‘IIA’) Standards recommendation).
• Reviewed an assurance map showing
the controls in place at the first line
of defence (management controls),
second line of defence (quality
assurance, financial, risk, compliance,
health and safety and security
controls) and third line of
defence (internal audit).
This showed that there were
no material gaps.
• Considered an Internal Audit review
which analysed audit findings during
the year to provide an initial qualitative
indicator of the risk and control
culture in each of the businesses
subject to audit.
• Considered a report from Internal
Audit on the effectiveness of the
Group’s risk management framework,
with particular focus on Saga Services
Limited. This concluded that a robust
risk management framework was in
place, with a good risk and control
culture evident across the Group.
External audit
• Considered the external auditors’
(EY) engagement terms (including the
fee proposal) for 2016/17, and made
recommendations to the Board.
• Considered the annual report planning
timetable and process and EY’s
intended approach to auditing areas
where significant risks and other areas
of audit emphasis were identified by
them during their planning work.
• Discussed with EY their main
observations following the interim and
full year audit.
• Carried out an effectiveness review of
the external audit process and external
auditors’ performance.
Reporting
• Considered the Group’s key
accounting policies and financial
judgements.
• Agreed with management the
arrangements for the introduction of
IBM Cognos Controller, a new
consolidation ledger tool to administer
the statutory and management
accounts.
• Reviewed the key areas of judgement,
including insurance reserving
methodology for the year, valuation
of goodwill and the pension liability.
• Considered the viability statement
and the underpinning tests performed
by management.
• Reviewed the interim and full year
results before their consideration by
the Board and considered the annual
report as a whole.
Other internal controls
• Continued to work in co-operation
with the Risk Committee on key areas
of business risk.
• Reviewed policies covering financial
crime (including anti-bribery, anti-
corruption and anti-fraud),
whistleblowing and non-audit fees.
• Received a report at each meeting
in relation to whistleblowing and the
proceedings of the Group financial
crime, data and information
security committee.
Our work, up to the date of this annual
report, in accordance with the Code
and FRC’s revised Turnbull Guidance
on Internal Control, confirmed that
no significant failings or weaknesses
were identified. Where areas for
improvement were identified, processes
are established to ensure that the
necessary action is taken and that
progress is monitored.
59
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Audit Committee Report continued
Destinology – post-acquisition
review
It is Saga’s normal practice to
carry out post-acquisition reviews
of acquired businesses, normally
around 12 to 18 months post
acquisition to ensure that we
internalise any key learnings. We
reviewed the acquisition rationale, our
actions to integrate and manage the
acquired business, its market and
financial performance and future
plans and prospects. This year we
reviewed Destinology and supported
management’s plans to grow the
business as an important part of the
Group’s overall travel offering.
Interim and full year results
The interim and full year results were
reviewed, together with papers from
management summarising the process
of preparing the financial statements, the
appropriateness and application of key
accounting policies, and the areas of
significant judgement, including how
those judgements were made.
Key areas of significant judgement which
we considered were as follows:
• Valuation of insurance contract
liabilities £642.3m. We considered the
actuarial processes for valuing these
liabilities, the level of liabilities by
accident year and by heads of
damage, and the conclusions of the
insurance Reserving Committee. We
received the views of EY from their
work on the assessment of reserves,
and concluded that the valuation of
insurance contract liabilities was
appropriate. We also considered the
accounting for the new quota share
contract and the accounting policies,
processes and procedures related to
the new funds withheld reinsurance
contract with NewRe. Since the year
end, we have considered the impact
of the government’s announcement
regarding the Ogden discount rate
for Saga’s insurance liabilities.
• Valuation of goodwill and intangibles
£1,538.8m. We considered the
methodology for performing
impairment reviews on the carrying
value of goodwill and considered the
output of each review, and concluded
that no impairments were necessary.
• Retirement benefit scheme. We
considered and supported the actuarial
advice regarding the valuation of the
assets and liabilities of the scheme
and the key assumptions used in
deriving those values.
Reports were received from EY at the
conclusion of their work on the interim
and full year results and during the
process of their audit. The reports on
the full year results included specific
focus on those areas identified as
having significant audit risk or other
audit emphasis.
Fair, balanced and understandable
At the request of the Board, the
Committee has considered whether,
in its opinion, this annual report and
accounts, taken as a whole, is fair,
balanced and understandable and
whether it provides the information
necessary for shareholders to assess
the Group’s performance, business
model and strategy.
When forming our opinion, we
considered whether:
• the report was clear with an
understandable layout, with key
messages given suitable prominence;
• the report was fair and presented
a balanced picture;
• the reporting on the business
segments in the narrative was
consistent with the reporting in
the financial statements;
• the key performance indicators were
disclosed at an appropriate level:
• statutory and adjusted measures
were explained clearly; and
• the significant issues and key
judgements referred to in the
narrative reporting were consistent
with the disclosures set out in the
financial statements.
We advised the Board that we supported
the statement made on page 42.
Viability statement
The Group’s methodology for production
of its viability statement is shown on
page 57 and the viability statement itself
on page 42.
Jointly with the Risk Committee we
considered and approved the list of
principal risks and uncertainties (see
pages 20-22) and the methodology used
to provide for an assessment of ongoing
viability. We specifically considered:
• the relevant assessment time period;
• the list of principal risks and
uncertainties and associated severe
but plausible potential outcomes; and
• the appropriateness of the scenarios
modelled.
We confirmed to the Board that we
considered that it was reasonable for the
Directors to make the viability statement
on page 42.
Internal control and Internal Audit
A key part of our work is the oversight of
the Internal Audit function. This includes
reviewing the results of the internal
auditor’s work and the assurance from
Internal Audit on its 3rd line of defence
review of the functioning of the risk
management framework. We also
review and monitor management’s
responsiveness to the internal auditor’s
findings and recommendations.
The function consists of 12 people
with a broad range of skills; we also
purchase audit skills externally for
specialised audits.
We are satisfied that the Internal Audit
function had appropriate resources
throughout the year.
Where Internal Audit reviews identify
significant areas of business risk these
are considered by the Risk Committee.
Details of these can be found in the Risk
Committee Report on pages 62-65.
60
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Committee recommended and the
Board approved the proposed
appointment of KPMG LLP as the
Company’s auditor for the year for the
financial year ending 31 January 2018.
This appointment is subject to approval
by shareholders of the Company at the
AGM to be held on 22 June 2017.
Effectiveness of the Committee
Evaluation
An external evaluation of the
Committee’s effectiveness took place
during the year, as part of the Board
effectiveness review (for details see page
51). This was completed by Independent
Audit Limited. The review indicated that
the Committee is working well and did
not identify any significant development
points requiring action.
Ray King
Chair, Audit Committee
In line with recommendations of the IIA
Standards, it is our policy to carry out an
external review of the effectiveness of the
Internal Audit function at least every five
years. Accordingly, we engaged KPMG
to undertake this review during the year.
The conclusion was that the function
was competent, effective and well led,
with strong alignment to principal risks.
Areas of development were identified as
the need to focus on emerging risks and
more use of third party specialists where
appropriate. As a result, the audit plan
and audit process includes greater
emphasis on emerging risks and further
analysis has been completed to identify
which audits will benefit from specialist
technical input.
Auditor independence and
non-audit services
The independence of EY is reviewed
by the Committee and confirmed by
the Auditor throughout the year.
A robust non-audit fee policy is in place
and is adhered to. This is reviewed
annually and was last approved
on 6 December 2016 following
consideration of the requirements of
the EU Audit Directive and Regulation
which came into force on 17 June 2016.
This includes a list of non-audit services
where we are satisfied the Auditor
can carry out those services without
affecting their role as Auditor. There
are clear approval levels where the
Committee Chair (or the whole
Committee) is required to authorise
assignments. Competitive tendering
is used for substantial work. A policy
on employment of former employees
of the Auditor was also approved
during the year.
The audit fees payable to EY in respect
of the year ended 31 January 2017 were
£1m (2016: £1.1m) and non-audit service
fees incurred were £0.2m (2016: £0.2m).
This equates to a non-audit to audit fee
ratio of 0.2 (2016: 0.17). A summary of
fees paid to the Auditor is set out in note
4 to the consolidated financial
statements on page 127.
Effectiveness of external auditors
We discussed our interaction with the
audit team and the audit partner during
the year and impressions gained.
We considered:
• our perception of the Auditor’s
understanding and insights into
the Group’s business model;
• how EY approached key areas of
judgement and the extent of challenge;
• the quality of the Auditor’s reporting
to the Committee and their overall
efficiency; and
• input from management via a
questionnaire on the efficiency and
conduct of the audit.
The Committee is satisfied that the audit
continues to be effective and provides
an appropriate independent and
objective challenge to the Group’s
senior management.
External audit re-appointment
and tendering
Auditor appointment and external
audit tendering
At the AGM last year EY were re-
appointed as our statutory auditors.
During the year, in accordance with
the Statutory Auditors and Third
Country Auditors Regulations 2016
which require FTSE 350 companies to
tender the audit at least every 10 years,
a formal tender process took place,
led by the Committee.
This was a structured process, where
the Company initially considered the top
10 firms in the UK in 2016 according to
Accountancy Age. Given that the Group
is a conglomerate with significant
presence in regulated industries, the
auditor had to have sufficient depth
specialist knowledge, resource and
relevant experience. Three of the ‘big
four’ firms, including EY, tendered for the
audit. The process involved meetings
with individual Committee members and
management, review of key documents
via a secure data room and formal
presentations. As a result, the
61
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Risk Committee Report
Role of the Committee
Our role is to monitor the Group’s
risk and compliance management
procedures (described on pages 54-57)
and review principal business risks and
compliance matters regularly on behalf
of the Board. We seek to consider our
risks on an individual and aggregated
basis across our businesses.
All Committee members are independent
Non-Executive Directors.
Attendance
The Committee met five times during
the year.
Member
Attendance
Orna NiChionna (Chair)
Philip Green
Ray King
Bridget McIntyre
Gareth Williams
5
4
5
5
5
The Company Secretary acts as
secretary to the Committee and attends
all meetings. The Chairman, Group Chief
Executive Officer, Group Chief Financial
Officer, Chief Risk Officer and Head
of Internal Audit attend by invitation.
During the year the Committee and
Chair held private meetings with the
Chief Risk Officer.
Our remit
• Advising the Board on the Group’s
overall risk appetite, tolerance
and strategy.
• Considering and recommending
to the Board the nature and extent
of the principal risks the Group
is willing to take in achieving
strategic objectives.
• Keeping under review the Group’s
overall risk assessment processes
that inform the Board’s decision
making, ensuring both qualitative
and quantitative metrics are
used, and reviewing these
measures regularly.
• Keeping under review the
effectiveness of the Group’s
risk management systems.
• Reviewing the Group’s capability to
identify and manage new risk types
and ensuring that a supportive risk
management culture is embedded
and maintained throughout the
Group, in conjunction with the Audit
and Remuneration Committees.
• Where appropriate, agreeing with
the Remuneration Committee how
risk should be recognised when
setting performance objectives for
executive remuneration.
• Reviewing reports on any material
breaches of risk limits and the
adequacy of proposed action.
• Reviewing reports on the
effectiveness of risk management
operations.
• Reviewing and monitoring
management’s responsiveness to
the findings and recommendations
of the Chief Risk Officer.
• Reviewing Group compliance
performance, assessing the
adequacy and effectiveness of the
various compliance functions and
giving particular consideration to
any breaches and/or required
notifications to compliance
authorities and how these have
been rectified.
• Exploring sources of risk and
mitigation processes in each
of our major business areas.
Time spent on matters
1 Risk policy, appetite and strategy 15%
2 Risk reports 14%
3 Compliance 13%
4 Business reviews 58%
1
2
3
4
Risk
Committee
Dear Shareholder,
I am pleased to present a summary
of our work during the financial year
to January 2017.
Customers are at the heart of what
we do, and during 2016 the Group
launched many initiatives and projects
as a direct result of work undertaken
to align our business model more
closely with customer needs and
expectations. The Committee sought
to ensure that these initiatives did not
expose the Group to excessive risks
– either operational, financial
or reputational.
We received presentations from each
of the various Group businesses, so
that we could understand and
challenge their identified major risks,
review their key controls and
mitigations and establish what this
meant for the principal risks
for the Group as a whole.
Orna NiChionna
Chair, Risk Committee
62
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC An Internal Audit review on the
effectiveness of the risk management
framework took place during the year,
with particular focus on Saga Services
Limited, and was considered by the
Audit Committee. This concluded that a
robust risk management framework was
in place, with a good risk and control
culture evident across the Group. A
continuous improvement approach will
be taken to strengthen processes and
drive consistent control standards within
front line businesses and to build on
second line of defence capabilities.
We have reviewed and approved the
description of principal risks and the
explanation as to how these are
managed or mitigated is contained
within this report. See:
• pages 20-22 for a summary of
principal risks; and
• pages 54-57 for further information on
our risk management processes.
These are designed to manage rather
than eliminate risk of failure to achieve
business objectives and can only provide
reasonable and not absolute assurance
against material misstatement or loss.
Management of third party suppliers
was considered in detail, recognising the
importance of this in light of the imminent
modern slavery legislation (see page 18
for a summary of the steps being taken
to ensure compliance). We considered
the failure of Parabis Law LLP and the
effect that this had had on our insurance
business. Whilst we found that the risk to
our business of relying on a single key
supplier had not been fully appreciated,
the response to the failure was managed
well, with no disruption to customer
service; and the lessons learned were
used to design and implement a more
rigorous approach to supplier selection
and monitoring in future.
We considered investments made by
asset/fund managers on our behalf and
were reassured that these followed
ethical guidelines.
The General Data Protection Regulation
will affect how we do business. We
considered the work undertaken by the
Data Protection Strategy Group that was
established to ensure that all necessary
steps will be taken before the regulation
comes into force in May 2018.
The Group risk policy was reviewed and
we approved this before it was signed
off by the Board. The revised policy was
subsequently circulated to all directors
and board attendees of all subsidiary
companies and made available to all
staff via the intranet.
Our terms of reference
Our terms of reference were reviewed
by the Committee and subsequently
approved by the Board on 20 September
2016. These explain our role and the
authority delegated to us by the Board
and are available on the Saga website at
http://corporate.saga.co.uk/corporate-
information/corporate-governance and
from the Company Secretary at Saga’s
registered office.
What we have done during the year
Risk strategy, policy and appetite
We reviewed our principal risks and
uncertainties against strategy. This
included those risks that would threaten
our business model, future performance,
solvency or liquidity. The principal risks
and uncertainties assessment was also
reconciled with the viability statement.
We discussed the possible impact of
terrorism on travel as well as the effect
of Brexit on the Group and considered
the risks associated with internal projects
and activities, in particular the new
ship and new insurance platform.
Developments in relevant industries,
such as the emergence of autonomous
vehicles and possible impact on the
motor insurance industry, were
also considered.
We recognise the need to review risk
appetites and tolerances on a continuous
basis. We considered risks outside of
agreed risk appetite and concluded that
where this is the case, the probability of
occurrence was very low and existing
mitigating actions were appropriate to
the scenarios. Risk appetite was
considered on an aggregate basis each
quarter. We were satisfied that controls
were in place which meant that the risk
of significant failing across the business
model was remote.
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GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Risk Committee Report continued
Management and reporting
At each meeting, we considered a
detailed risk report. This included a
summary of each business’s
management monitoring. We worked
with the Chief Risk Officer to consider
each business area’s strategies in the
context of their risk framework to ensure
that all forward-looking risks had been
identified and considered.
All business CEOs certified compliance
with the risk management framework at
the year end.
Review of incidents, particularly
relating to significant control
failures or weaknesses
Incidents are included in the risk reports.
We reviewed and discussed these in
order to identify causes, necessary
action, lessons learned and monitoring
requirements.
Compliance
At each meeting, we received a Group
regulation report, which included the
status of the Group compliance
monitoring plan for the regulated
businesses (in financial services, travel
and healthcare). The relationships of
individual businesses with regulators,
management of incidents and the impact
of the Financial Conduct Authority’s
annual business plan were considered
and discussed. Material changes to
compliance regulations were also noted.
Review of individual businesses
Each of our meetings included a
presentation from one or two of the
business CEOs and senior members
of the team to discuss in detail the risk
and compliance issues in their business,
prioritised according to risk ratings
in the Group’s risk register.
Reviews of individual businesses during
the year included the following:
Saga Services Limited
(regulated business)
• Noted the risk and assurance
framework following the
consolidation of Saga Services
Limited, Direct Choice Insurance
Services Limited and Bennetts
Biking Services Limited.
• Discussed how to strengthen
supplier relationships.
• Considered the impact of the
FCA’s regulatory changes on
renewal documents.
• Discussed key risks and
opportunities for this business and
how these would evolve within the
overall strategy for the Group.
Insurance platform replacement
• Considered the drivers for change
and risks associated with the
project.
• Discussed whether it was
appropriate to introduce a home
developed or package platform.
• Reviewed resource requirements,
cost and implementation timetable.
• Conducted a review of third parties
involved in the implementation.
• Assessed the proposed
governance structure for the project.
• Asked that regular updates on the
implementation be provided at
each Board meeting.
AICL and CHMC Limited
• Noted the governance structure of
both companies and requirements
of the Financial Services
Commission in Gibraltar.
• Discussed the claims process and
considered the claims history.
• Noted how legislative events (such
as the Courts Act 2003, Legal Aid
Sentencing and Punishing of
Offenders Act 2012 and possible
changes to the Ogden discount
rate) affected the business.
• Discussed how underwriting risk
was managed.
• Considered the effect of the
growing relevance of the motor panel.
• Reviewed the quota share
reinsurance arrangement.
Saga Money
• Considered the governance
structure, including the role of
Internal Audit, Compliance and Risk.
• Reviewed supplier relationships
(to ensure performance was in line
with risk appetite and tolerance)
and regulatory risk.
• Considered the risk associated
with the joint venture, Saga
Investment Services Limited.
• Reviewed the principal risks for
this business.
• Noted that the horizon risks would
be reviewed to assess how risk
interacted with the strategic
direction of the business.
Shipping
• Looked at the assurance structure
and minimum standards required
by each relevant Flag state.
• Reviewed the relationship with
V Ships and our requirement for
them to operate at ‘beyond
compliance’ levels.
• Considered the programme of work
on maintenance and resilience
assurance for the ships.
• Assessed the current status of the
new build, including a review of the
governance structure, design
timetable and how our customers’
expectations would be included.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Since the year end, a presentation has
been received from the travel division.
Effectiveness of the Risk Committee
Evaluation
An external evaluation of the
Committee’s effectiveness took place
during the year, as part of the Board
effectiveness review (for details see page
51). This was completed by Independent
Audit Limited. The review indicated that
the Committee is working well and
is well-supported by management.
Looking ahead, we will continue to
ensure that risk processes are aligned
with strategy, that risk tolerance levels
are monitored and the impact of risk on
our businesses and on an aggregate
basis is considered. In particular, we
will focus on developing our approach
to assessing the effectiveness of risk
management, looking at the impact our
risk management approach has on the
way the business is run and how
decisions are taken. We will also ensure
that we will bring in outside expertise
should we feel that our oversight of any
particular risk areas would benefit from
independent specialist input.
Orna NiChionna
Chair, Risk Committee
Group insurance arrangements
• Considered the insurance
programme for the Group including
cost, management of brokers and
advisers and summary of cover.
• Discussed whether any additional
cover was required, specifically in
relation to the threat of financial
crime or cybercrime.
IT
• Discussed our approach to security
and encryption.
• Reviewed disaster recovery
procedures and times.
• Received presentations on the
quality and frequency of staff
training in cybersecurity awareness
and actions.
• Refreshed our understanding of
the IT infrastructure and how IT
support was managed throughout
the Group.
Change management
• Reviewed the Group change
strategy roadmap.
• Considered how projects were
linked and how best practice and
consistency levels were maintained
across the Group with optimum
utilisation of resource and
people skills.
• Discussed how the health of
change programmes was
monitored by the use of five key
indicators (schedule, resource,
quality, scope and budget).
• Concluded that the change
management team acted as risk
mitigation and needed to improve
the disciplines for change demand
throughout the Group, so that
change was made only when
necessary.
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GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Relations with shareholders
• add presentations to our website to
allow shareholders to gain an insight
into how our trading performance links
to strategy;
• hold investor ‘road shows’, investor
days, briefings and ad hoc meetings
on request, where calendar and
regulatory requirements allow;
• conduct tours of Saga’s operations;
• notify our shareholders of key financial
calendar information;
• publish details of live webcasting
services for key presentations; and
• make past key presentations available
via our corporate website.
Wider communication
In addition to the communication
mentioned above, we:
• arrange face-to-face presentations
of full year and half year results
where the Group Chief Executive
Officer and management team are
available for discussions;
• hold telephone briefings for
analysts in conjunction with key
financial announcements;
• organise face-to-face and
telephone meetings for analysts
with the management team;
• hold presentations with bank
sales teams; and
• conduct tours of Saga’s operations
for analysts.
The Director of Corporate Affairs reports
on all shareholder and wider market
matters and provides regular updates
to the Chairman and Non-Executive
Directors by way of face-to-face
briefings, email updates and an Investor
Relations Report, which is discussed
at each Board meeting. This includes
reference to the views of key
shareholders, including their concerns,
along with any new analyst research.
We recognise that our brokers play an
important part in communicating our
message to our shareholders. During
the year, we undertook a broker review
and a result, the Board appointed
J.P. Morgan Cazenove as joint
Corporate Broker and joint Financial
Adviser. Numis Securities Limited was
appointed joint Corporate Broker and
Goldman Sachs International was
appointed joint Financial Adviser.
The Board is kept fully up to date
on the views of shareholders and
analysts through:
• broker attendance at Board
meetings to provide honest
feedback;
• composition of the shareholder
register;
• share price performance monitoring;
• feedback from investor meetings,
including key questions and
concerns;
• recommendations and
expectations of sell-side analysts;
• peer group news; and
• feedback from our professional and
other external advisers/market
participants.
Annual General Meeting
The AGM will be held on 22 June 2017 at
11am at Enbrook Park, Sandgate,
Folkestone, Kent CT20 3SE.
The Chairman and Chairs of all
Committees will be available to answer
questions during the formal business
of the meeting.
The notice of the AGM contains
an explanation of business to be
considered at the meeting. A copy
will be available on Saga’s website,
http://corporate.saga.co.uk, in
due course.
We plan a shareholder communication
strategy for the year, to ensure that we
maintain a relationship with our
shareholders based on trust and to help
them understand how we plan to grow
the business and the effect of decisions
made, for example, the introduction of
the quota share arrangement and
increasing our dividend target range.
We understand the importance of
maintaining open and regular dialogue
with our shareholders – many of whom
are our loyal customers. We welcome
feedback at any time during the year and
the AGM provides the opportunity for our
shareholders to meet the Board and
senior management of the Group.
Lance Batchelor, Group Chief Executive
Officer and Jonathan Hill, Group Chief
Financial Officer lead communications
with our shareholders assisted by the
shareholder relations team led by our
Director of Corporate Affairs.
We set ourselves the target of providing
information to our shareholders that is
timely, clear and concise.
Saga has a diverse shareholder register
which is formed of both institutional and
retail ownership, the latter numbering
over 180,000. Saga also has a number
of analysts following the Company so
we arrange for a clear explanation of
key strategic events and developments,
including results and acquisitions
announcements.
We communicate in the following ways:
Shareholder communication
In addition to the AGM, we:
• have regular meetings with key
shareholders;
• arrange face-to-face presentations of
full year and half year results by the
Group Chief Executive Officer and
Group Chief Financial Officer;
• hold telephone briefings in conjunction
with key financial announcements;
• publish live and post-event webcasts
of key presentations;
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
Remuneration Committee Chair annual statement
The Company’s core principles of
remuneration are to support:
• Sustainable long-term value creation.
• Profitable growth and strong cash
generation.
• Attraction, retention and motivation of
a talented leadership cadre to deliver
the business strategy.
All Committee members are independent
Non-Executive Directors.
Attendance
We held five meetings during the year.
Member
Attendance
Gareth Williams (Chair)
Philip Green
Ray King
Bridget McIntyre
Orna NiChionna
5
4
5
5
4
The Committee receives assistance from
the Group HR Director and Company
Secretary, who attend meetings by
invitation, except when issues relating
to their own remuneration are being
discussed. The Group Chief Executive
Officer, Group Chief Financial Officer
and the Chairman attend by invitation.
Structure of the report
• Annual Statement (pages 67-69).
• Directors’ Remuneration Report
‘at a glance’ (pages 70-71).
• Annual Report on Remuneration
(pages 72-89).
Our remit
• Reviewing the broad remuneration
policy for the senior executives.
• Recommending and monitoring the
level and structure of remuneration
for senior management.
• Governing all share schemes.
• Reviewing any major changes
in employee benefit structures
throughout the Company or Group.
Time spent on matters
1 Remuneration Policy 40%
2 Senior Management remuneration 40%
3 Share schemes 15%
4 Employee benefit structures 5%
4
3
2
1
Our terms of reference
Our terms of reference were reviewed
by the Committee and subsequently
approved by the Board on 20 September
2016. They are available on our website,
http://corporate.saga.co.uk/corporate-
information/corporate-governance and
from the Company Secretary at Saga’s
registered office.
Remuneration
Committee
Dear Shareholder,
This year, the business has made
significant progress with our key
strategic initiatives whilst delivering
another robust financial performance.
The strength of our core businesses
and our operating model has again
led to strong cash generation, enabling
us to reduce further our debt ratio and
giving us the confidence to increase
our dividends offered to 8.5p.
Our strategy remains focused on
becoming an even more customer
driven business, growing our core
insurance and travel businesses,
investing in future growth, maintaining
our operating model to generate
strong cash flows and robust
earnings and investing in our people.
The Remuneration Committee
continues to review the Policy on an
ongoing basis and is comfortable that
it remains appropriate and effective
heading into the 2017/18 financial year.
This report lays out the core principles
of our Directors’ Remuneration Policy
and our practice over the past year. I
trust we have done this with the
transparency and clarity that aid your
understanding of both our intent and
our activity.
Gareth Williams
Chair, Remuneration Committee
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GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
Remuneration Committee Chair annual statement continued
Changes to our Remuneration
Policy during the year
No changes to the Policy approved at
our 2015 AGM are being proposed
at the Group’s next AGM.
What we have done during the year
We reviewed the key components of
remuneration.
Decisions made/actions taken
• Made grants in May 2016 under the
Saga Long Term Incentive Plan ('LTIP')
for the Executive Committee and
senior management of the Company.
Grant levels were consistent with our
normal award policy.
• Approved the award of free shares to
all eligible employees in July 2016.
• Approved base salary increases of
2%, in line with the average rises to all
employees, for the Group Chief
Executive Officer and the Group Chief
Financial Officer, bringing their salaries
to £689,785 and £424,483 respectively
to apply for the 2017/18 financial year.
• Approved the fees for the Chairman,
which will increase by 2% from 1 June
2017 to an annual fee of £286,110.
• Reviewed the performance targets for
the 2017 LTIP award. The strategy
calls for an acceleration in organic
profit growth (profit excluding historic
insurance claims performance) over
the next five years. That growth since
IPO has been in high single digits.
We considered it appropriate to modify
the target architecture to incentivise
management to pursue a more
ambitious outcome which recognises
the strategic shift the business is
making in how it is growing profit.
Consequently, we have:
– introduced a second Organic EPS
measure linked to organic profit
growth. The performance range
for the LTIP award will be 12-21%.
– retained the existing Basic EPS
measure with the existing range
of 5-12%.
– retained the existing TSR measure
and target architecture.
– rebalanced the proportions of the
total award to 30% Basic EPS,
30% Organic EPS, 40% TSR.
Further details of these changes
can be found on pages 78-79.
• Reviewed and approved the 2016/17
bonus outcomes, both financial
metrics and personal objectives,
for the Executive Directors.
One of the most significant
considerations was the impact of the
Ogden rate adjustment announced on
27 February 2017. The Remuneration
Committee gave significant time to
considering the impact of the post
year end adjustment on the Group’s
2016/17 financial results, which
included a £4m adjustment to ensure
that the full impact of the new rate
is reflected in our 2016/17 claims
liability provisions.
We decided that the impact of this
adjustment should not affect the
bonus outcomes for Executive
Company highlights for the 2016/17
financial year
The implementation of our strategy
(as outlined on pages 12-13) has been
substantiated through the key
performance highlights of the year:
• Continued strong performance
in the core business areas of
insurance and travel, which has
led to strong results across all
the Group’s operations.
• Group profit before tax
from continuing operations
increased by 9.7% to £193.3m
(2016: £176.2m), on revenue of
£871.3m (2015: £963.2m).
• Underlying profit before tax (profit
before tax excluding derivatives and
the Odgen impact), the measure of
profit performance in the annual
bonus for management, grew by
5.6% to £187.4m (2016: £177.4m).
• Strong profit delivery and continued
high levels of cash conversion
meant the Group continued its
deleveraging with net debt to
Trading EBITDA ratio now 1.9x
(2016: 2.3x).
• Dividend payments to our
shareholders of 5.0p per share
in respect of 2016 and an interim
dividend of 2.7p in respect of 2017,
reflecting our confidence in meeting
market expectations for the full
year and continuing to deliver
sustainable profit growth.
• Introduction of the new funds-
withheld quota share arrangement
in motor insurance.
• Continued investment in our
cruise ships, demonstrating
our commitment to continued
excellence and service to
our customers.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Directors and the broader incentivised
population for the following reasons:
– The announced Ogden rate
adjustment was well beyond
expected parameters.
– Management had been very prudent
in its reserving for a potential
adjustment as is evidenced by
the relatively small additional
provision that had to be made
retrospectively to the 2016/17
results.
Effectiveness of the Remuneration
Committee
An external evaluation of the
Committee’s effectiveness took place
during the year, as part of the Board
effectiveness review (for details see
page 51). This was completed by
Independent Audit Limited and
concluded that the Committee is
working well, in part reflecting the
effective support it is receiving
from HR management.
I hope that you find the information
contained in this report helpful,
thoughtful and clear. I welcome
any feedback from the Company’s
shareholders and you can contact me
at gareth.williams@saga.co.uk if you
have any questions or comments on
this report. I look forward to hearing your
views and will be available to answer any
questions at the Company’s AGM, where
we will ask our shareholders to approve
the Directors’ Remuneration Report.
Looking ahead we will keep our work
under review including assessing the
scope of our involvement in remuneration
deliberations and how we work with
executives on such matters. We will:
• focus on our core principles of
remuneration in the context of our
evolving and developing business, to
ensure they remain fit for purpose and
are deployed in all our considerations
and decisions on remuneration
practice; and
• review our Remuneration Policy as our
current Policy comes to the end of its
3-year approved term. We will
be conducting a full remuneration
review and will be putting forward
the revised policy to a binding
vote at the 2018 AGM.
Gareth Williams
Chair, Remuneration Committee
This report has been prepared in
accordance with Schedule 8 to The
Large and Medium-sized Companies
and Groups (Accounts and Reports)
Regulations 2008 as amended in
2013, the provisions of the current
Code and the Listing Rules.
– There has been significant
appreciation in the Saga share price
post the Company’s announcement
of the relatively small profit impact
of the Ogden rate adjustment.
– There is no negative impact on the
Company’s ability to pursue its
stated dividend policy and the final
payment for this year represents an
18.1% increase for our shareholders.
Further details on the impact of our
decision can be found on page 83.
• Approved the bonus awards for
personal objectives for Executive
Directors and senior management
following a detailed calibration of
outcomes against stated targets.
Full details of these can be found
on page 84.
• Approved final annual bonus payments
for the Executive Directors, which was
67.5% of their maximum opportunity,
equating to 101.2% of salary for the
Group Chief Executive Officer and
84.3% of salary for the Group Chief
Financial Officer. The payouts reflect
the strong performance of the Group
over the year and reflect 100.1%
achievement against the Group PBT
target (measured as profit before tax
excluding derivatives and the Odgen
impact) and 137.3% achievement
against the Group cash flow target.
Full details of the payouts are provided
on page 83.
69
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
At a glance
In this section, we summarise:
• Our Remuneration Policy which applied for the 2016/17 financial year;
• The actual performance and remuneration outcomes for the 2016/17 financial year;
• The link between our strategy for 2017/18 and the Remuneration Policy; and
• The proposed implementation of the Remuneration Policy for 2017/18.
More detail on the Remuneration Policy can be found on the website and further information on this year’s outcomes is given in
the Annual Report on Remuneration on pages 82-89.
Directors’ Remuneration policy (applied in 2016/17)
The Remuneration Policy and strategy is designed to stimulate sustainable, value creating growth and performance for the
business and rewards Executives’ performance accordingly.
The Company’s core principles of remuneration are to support:
• sustainable long-term value creation;
• profitable growth and strong cash generation; and
• attraction, retention and motivation of a talented leadership cadre to deliver the business strategy.
The Committee will review annually the remuneration arrangements for the Executive Directors and the Executive Team drawing
on trends and adjustments made to all employees across the Group and taking into consideration:
• our business strategy;
• overall corporate performance;
• market conditions affecting the Company;
• the recruitment market where Saga competes for talent;
• our broader remuneration practices within the Company; and
• changing views of institutional shareholders and their representative bodies.
Remuneration Policy table summary
A summary of the approved Remuneration Policy is outlined below. There are no changes from the approved Policy. The full
Policy as approved by shareholders on 23 June 2015 is available on our website at http://corporate.saga.co.uk.
Element
Salary
Benefits
Pension
Operation of element
The Remuneration Committee ensures that maximum salary levels are positioned in line with
companies of a similar size to Saga in the FTSE 250.
When determining an appropriate level of salary, the Remuneration Committee considers:
• remuneration practices within the Group;
• the general performance of the Group;
• salaries within the ranges paid by the companies in the comparator group used for remuneration
benchmarking; and
• the economic environment.
In general, salary rises to Executive Directors will be in line with the rise to employees.
The Executive Directors receive family private health cover, death in service life assurance,
a car allowance and subsistence expenses. They also receive employee discounts in line with
other employees.
The maximum contribution to an Executive Director’s pension or salary supplement is 20% of
gross basic salary.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Element
Operation of element
Annual bonus
The Remuneration Committee will determine the maximum annual participation in the Annual
Bonus Plan for each year, which will not exceed 150% of salary.
The maximum value of deferred shares is 50% of the bonus earned, which vest after a
minimum deferral period of three years based on continued employment.
Long Term Incentive
Plan (‘LTIP’)
LTIP maximum grant is 200% of salary p.a.
Awards will vest at the end of three years’ subject to the achievement of:
• EPS performance which ensures the achievement of the annual profit performance targeted by
the Annual Bonus Plan flows through to long-term sustainable EPS growth; and
• TSR performance of the Company compared to the FTSE 250 (excluding real estate and equity
investment trusts) which measures the success of the implementation of the Company’s strategy
in delivering an above market level of return.
The LTIP contains clawback and malus provisions.
Share Incentive
Plan (‘SIP’)
The purpose of the SIP is to encourage all employees to become shareholders in the Company and
thereby align their interests with shareholders.
Minimum shareholding
requirement
The Remuneration Committee has adopted formal shareholding guidelines that will encourage the
Executive Directors to build up over a five-year period, and then subsequently hold, a shareholding
equivalent to a percentage of base salary.
Chairman &
Non-Executive
Director fees
• Group Chief Executive Officer – 200% of salary;
• Group Chief Financial Officer – 150% of salary.
The fees for the Chairman and Non-Executive Directors are set at broadly the median of the
comparator group used for Executive Director remuneration.
In general, the level of fee increase for the Non-Executive Directors will be set taking account of
any change in responsibility and will take into account the general rise in salaries across the
Saga workforce.
The Company will pay reasonable expenses incurred by the Chairman and Non-Executive
Directors and may settle any tax incurred in relation to these.
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GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
Directors’ Remuneration Policy
How have we performed in 2016/17?
KPIs
Threshold
Target Maximum
Actual
Percentage of Target bonus earned/
current potential LTIP vesting
Percentage of
Maximum bonus earned
Annual Bonus Plan
Group PBT1
Group cash flow2
Personal objectives
£181.9m £187.3m £190.8m £187.4m
61.6%
64.4%
66.3%
88.4%
100.1%
137.3%
60.8%
100.0%
See pages 83-84 for details of the measures and performance for the year. In addition, the Committee has
set out its consideration of the Ogden judgement in relation to bonus outcomes.
2014 LTIP Award as at
year end 31 January 2017
EPS growth (p.a.)
TSR
2015 LTIP Award as at
year end 31 January 2017
EPS growth (p.a.)
TSR
2016 LTIP Award as at
year end 31 January 2017
EPS growth (p.a.)
TSR
7%
Median
7%
Median
5%
Median
–
–
–
–
–
–
12%
15.7%
Upper
quartile
Below
Median
12%
14.4%
Upper
quartile
Below
Median
12%
10.9%
Upper
quartile
Below
Median
50%
0%
50%
0%
44%
0%
Notes:
1 Underlying profit before tax (profit before tax excluding derivatives and the Odgen impact).
2 Defined as net available cash generation.
The 2014 LTIP will vest on 30 June 2017. The indications for the LTIP performance in the table above are as at 31 January 2017. The
relative TSR target for the 2014 LTIP is substantially (but not fully) completed as at 31 January 2017. The EPS target is complete.
The Committee has included the current position for the 2015 and 2016 LTIP awards to allow shareholders to see the potential
value in the long-term remuneration over the next 3 years.
The final level of performance and corresponding level of vesting of the LTIP awards will be dependent on the performance at
the end of the relevant performance period.
Single total figure of remuneration for Executive Directors for the 2016/17 financial year
Executive Directors
Lance Batchelor
(Group Chief
Executive Officer)
Jonathan Hill
(Group Chief
Financial Officer)
Period
2016/17
2015/16
Salary
£
676,260
663,000
Taxable
benefits
£
30,403
28,095
Bonus
£
684,455
781,678
2016/17
2015/16
416,160
334,246
24,185
19,748
351,003
325,699
LTIP
£
676,4563
–
–
–
Pension1
£
134,224
127,514
80,876
74,680
Other2
£
Total
£
–
–
–
190,000
2,201,798
1,600,287
872,224
944,373
Notes:
1 This includes the pension salary supplement paid to the Executive Director being the difference between the employer contribution into the Saga
Pension Scheme and 15% of the Executive Director’s base salary. Further information is given on page 78.
2 Buyout award of £190,000 was made to Jonathan Hill on recruitment in the form of Saga shares (101,932 based on Saga’s closing share price on 7 April
2015 of 186.4p). In determining this amount the Committee applied the 'buyout' element contained in the recruitment policy. Half of the award vested on
7 April 2016 with a value of £105,233; the remaining half vests on 7 April 2017. There are no further performance conditions.
3 The value of the 2014 LTIP is indicative as the award will vest on 30 June 2017. See page 85 for details of the indicative vesting for the 2014 LTIP which
is 50% of the award. The share price used to derive the indicative value is the average share price over the last quarter of the financial year which was
192.53p. The final vesting value of the 2014 LTIP will be restated in the 2017/18 annual report.
For the full single figure table, please see page 82 in the Annual Report on Remuneration.
72
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Illustration and application of Remuneration Policy 2016/17
The following charts show the 2016/17 actual remuneration against the proposed Policy levels of remuneration for the
Executive Directors.
Group Chief Executive Officer (Lance Batchelor)
Group Chief Financial Officer (Jonathan Hill)
£m
4
3
2
1
0
£2,261,033
36%
27%
37%
£840,887
100%
£3,207,797
42%
32%
£2,201,798
13%
49%
26%
38%
£m
2.0
1.5
1.0
0.5
0.0
£1,665,661
38%
31%
£1,207,885
31%
26%
£872,224
41%
43%
31%
59%
£521,121
100%
Minimum
Target
Maximum
Actual
Minimum
Target
Maximum
Actual
Fixed elements
Bonus
LTIP
Fixed elements
Bonus
LTIP
Under the Policy, the remuneration payable to each of the Executive Directors is based on salaries at the start of 2016/17,
under three different performance scenarios: (i) Minimum; (ii) Target; and (iii) Maximum. The elements of remuneration have
been categorised into three components: (i) Fixed; (ii) Annual Bonus (Deferred Bonus); and (iii) LTIP. In addition, for the purposes
of comparison we have included the actual single figure remuneration paid in 2016/17. The following table outlines the elements
included in the illustration above:
Element
Fixed
Description
Salary, benefits and pension1
Annual Bonus Annual bonus (including
deferred shares)
LTIP
Award under the LTIP
Minimum
Included
No annual
variable
No multiple
year variable
Target
Included
60% of
maximum bonus
60% of the
maximum award
Maximum
Included
100% of
maximum bonus2
100% of the
maximum award3
Notes:
1 Based on 2016/17 financial year salary, benefit payments and pension.
2 Equating to 150% for the Group Chief Executive Officer and 125% for the Group Chief Financial Officer.
3 Equating to 200% for the Group Chief Executive Officer and 150% for the Group Chief Financial Officer.
4 Participation in the SIP has been excluded given the relative size of the opportunity levels.
In accordance with the regulations share price growth has not been included for the Policy scenarios. In addition, dividend
equivalents have not been added to deferred share bonus and LTIP share awards.
Pay at risk
The charts below set out the elements of the remuneration provided under the Policy which remain ‘at risk’. For example:
• Payment is subject to continuing employment for a period (deferred shares and LTIP awards);
• Performance conditions must still be satisfied (LTIP awards); or
• Elements are subject to clawback or malus for a period, over which the Company can recover sums paid or withhold vesting.
73
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
Directors’ Remuneration Policy continued
Figures have been calculated based on target performance (fixed elements plus 60% of maximum annual bonus and 60% of the
maximum LTIP). The charts have been based on the same assumptions as set out above for the illustrations of the application of
the Remuneration Policy.
Group Chief Executive Officer (Lance Batchelor)
Group Chief Financial Officer (Jonathan Hill)
Subject to malus
Subject to clawback
Annual
bonus
£620,807
‘At risk’
£1,448,549
LTIP
£827,742
2017 2018 2019 2020 2021
Salary
£689,785
Pension
& benefits
£165,817
Subject to malus
Subject to clawback
Salary
£424,483
Pension
& benefits
£106,261
Annual
bonus
£318,362
LTIP
£382,035
‘At risk’
£700,397
2017 2018 2019 2020 2021
‘At risk’
Pension and benefits
Salary
‘At risk’
Pension and benefits
Salary
Malus is the adjustment of unvested awards in specific circumstances. Clawback is the recovery of vested awards or payments in
specific circumstances.
Service agreements and letters of appointment
Executive Directors
Name
Date of service contract Nature of contract
From Company
From Director
Notice periods
Compensation provisions
for early termination
Lance Batchelor
2 May 2014
Jonathan Hill
7 April 2015
Rolling
Rolling
6 months
6 months
6 months
6 months
None
None
The Non-Executive Directors of the Company do not have service contracts. The Non-Executive Directors are appointed
by letters of appointment. Each independent Non-Executive Director’s term of office runs for a three-year period.
The Company follows the UK Corporate Governance Code’s recommendation that all directors of FTSE 350 companies
be subject to annual re-appointment by shareholders.
74
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Equity exposure of the Board (audited)
The following table and chart sets out all subsisting interests in the equity of the Company held by the Executive and
Non-Executive Directors:
Shares held directly
Other shares
held
Options
Director
Shareholding
requirement
(% salary)
Current
shareholding
(% salary)1
Beneficially
owned3
Executive Directors
Deferred
shares not
subject to
performance
conditions
LTIP
interests
subject to
performance
conditions
Outstanding
interests in
the Share
Incentive
Vested
Unvested
Plan
Shareholding
requirement
met?
Lance
Batchelor
200%
87%
89,172
227,679
1,968,417
– 2,162,162
741
Jonathan Hill
150%
87%
92,601
102,032
584,176
Non-Executive Directors
Philip Green
Ray King
Orna
NiChionna
Gareth
Williams
Bridget
McIntyre
Andrew
Goodsell2
–
–
–
–
–
–
–
–
–
–
–
–
32,433
27,027
27,200
32,433
7,245
–
–
–
–
–
–
–
–
–
–
5,379,805
150,882
210,214
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,056
–
–
–
–
–
–
No
No
n/a
n/a
n/a
n/a
n/a
n/a
Notes:
1 Values not calculated for Non-Executive Directors as they are not subject to shareholding requirements.
2 Outstanding IPO options, deferred bonus shares and LTIP in relation to his service as Executive Chairman, together with 2,564,103 shares owned by
a family investment company.
3 Lance Batchelor – 31,458 shares owned by his spouse. Jonathan Hill – 60,206 shares owned by his spouse.
4 Since the year end, Lance Batchelor has bought an additional 155 shares through the SIP. There have been no other changes to the shareholdings
above.
Executive Directors are required to build up their shareholdings over a reasonable amount of time, which would normally be five
years, and then subsequently hold a shareholding equivalent to a percentage of base salary.
The number of shares of the Company in which current Directors had a beneficial interest and details of long-term incentive
interests as at 31 January 2017 are set out below:
Jonathan Hill
Shareholding requirement
Value of beneficially owned shares
Value of/gain on interests over shares (i.e. unvested/unexercised awards)
Lance Batchelor
Shareholding requirement
Value of beneficially owned shares
Value of/gain on interests over shares (i.e. unvested/unexercised awards)
% of salary
0
100
200
300
400
500
600
Notes:
– The closing share price of 184.75p as at 31 January 2017 has been taken for the purpose of calculating the current shareholding (i.e. value of
beneficially owned shares and value of / gain on interests over shares) as a percentage of salary.
– Value of/gain on interests over shares comprises unvested 2014, 2015 and 2016 LTIP awards. The one-off IPO share option award for the Group
Chief Executive Officer has an exercise price of 185.00p hence there was no gain on these awards at 31 January 2017.
– Unvested LTIP shares and options do not count towards satisfaction of the shareholding guidelines.
75
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
Directors’ Remuneration Policy continued
Our Remuneration Policy and its link to our Group strategy for the 2017/18 financial year
The table below summarises the purpose of our Remuneration Policy and its linkage to our corporate strategic objectives. The
Group’s strategy is laid out on pages 01-39. The key elements of the Company’s strategy and how its successful implementation
is linked to the Company’s remuneration are set out in the following table.
Strategic priorities
Remuneration Policy
Becoming increasingly
customer centric
Growing profits in our insurance
and travel businesses
Fixed remuneration
(salary, benefits and pension)
The Company provides competitive levels to attract
and retain talent required to successfully deliver on
our business strategy.
• Delivered enhanced
digital capabilities.
• Delivered profit growth across all
key insurance lines.
• Enhanced understanding
• Increased passengers in our tour
of our high-affinity
customer base.
operating business.
✓
Profit before tax growth.
An incentive to grow in the core markets
is provided in the short term through the
Profit before tax (‘PBT’) growth and cash
flow targets in the Annual Bonus Plan.
✓
✓
✓
Targeting the growth in
number of highly valued
customers and customer
loyalty will support the
long-term growth of
the business.
Total shareholder returns and earnings
per share.
The generation of cash and PBT growth
targeted by the annual bonus will help
enhance the value of the Company which
will be measured through the success of
the Company’s TSR performance against
its comparators (a performance condition
under the LTIP).
An incentive to grow in these markets
The success in maximising operational
A good incentive will aid the retention
in the longer term is provided through
excellence will be measured through the
of key people.
EPS growth targeted by the LTIP.
long-term EPS growth targeted by the
LTIP. In addition, sustained value generation
will be reflected in the share price of the
Company which will be measured through
the Company’s TSR performance under
the LTIP.
Annual bonus metrics
Maximum annual bonus opportunity is 150% of salary:
• two thirds of the total bonus to be paid immediately
in cash; and
• one third deferred into shares subject to a three-year
vesting period.
LTIP metrics
Maximum annual award is 200% of salary.
Awards will vest at the end of three years subject
to the achievement of:
• stretching EPS conditions which provides alignment
to our core strategic priorities; and
• relative total shareholder returns (‘TSR’) performance
of the Company which provides alignment to the
success of our business in delivering value to
our shareholders compared with relevant
comparator companies.
Minimum shareholding requirements
• Group Chief Executive Officer 200% of salary.
• Group Chief Financial Officer 150% of salary.
All employee share plan
76
Investing in future growth
• Started the build of new ship.
• Saga Investment Services up
and running.
Maintaining our simple
and efficient operating model
Developing our people
• Started the investment in a new
• Continued to build engagement levels.
insurance platform.
• Continued to promote employee
share ownership.
Group cash flow.
Equity Ownership.
The success in maximising operational
Encouraged through bonus deferral
excellence will be reflected through
increased profitability and cash flow.
and shareholding requirements.
✓
✓
✓
✓
✓
✓
Encouraged through the alignment of
interests with shareholders by Executives
becoming locked-in shareholders.
Encourages all employees to become
shareholders in the Company providing
a focus on growth and long-term
shareholder value creation.
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Remuneration Policy
Fixed remuneration
(salary, benefits and pension)
Annual bonus metrics
Maximum annual bonus opportunity is 150% of salary:
• two thirds of the total bonus to be paid immediately
• one third deferred into shares subject to a three-year
in cash; and
vesting period.
LTIP metrics
Maximum annual award is 200% of salary.
✓
• stretching EPS conditions which provides alignment
to our core strategic priorities; and
• relative total shareholder returns (‘TSR’) performance
of the Company which provides alignment to the
success of our business in delivering value to
our shareholders compared with relevant
comparator companies.
Minimum shareholding requirements
• Group Chief Executive Officer 200% of salary.
• Group Chief Financial Officer 150% of salary.
All employee share plan
Profit before tax growth.
An incentive to grow in the core markets
is provided in the short term through the
Profit before tax (‘PBT’) growth and cash
flow targets in the Annual Bonus Plan.
✓
✓
customers and customer
loyalty will support the
long-term growth of
the business.
The generation of cash and PBT growth
targeted by the annual bonus will help
enhance the value of the Company which
will be measured through the success of
the Company’s TSR performance against
its comparators (a performance condition
under the LTIP).
Our Remuneration Policy and its link to our Group strategy for the 2017/18 financial year
The table below summarises the purpose of our Remuneration Policy and its linkage to our corporate strategic objectives. The
Group’s strategy is laid out on pages 01-39. The key elements of the Company’s strategy and how its successful implementation
is linked to the Company’s remuneration are set out in the following table.
Strategic priorities
Becoming increasingly
customer centric
Growing profits in our insurance
and travel businesses
Investing in future growth
Maintaining our simple
and efficient operating model
Developing our people
The Company provides competitive levels to attract
• Enhanced understanding
• Increased passengers in our tour
and running.
share ownership.
• Delivered enhanced
• Delivered profit growth across all
digital capabilities.
key insurance lines.
• Started the build of new ship.
• Saga Investment Services up
• Started the investment in a new
insurance platform.
• Continued to build engagement levels.
• Continued to promote employee
and retain talent required to successfully deliver on
operating business.
of our high-affinity
customer base.
our business strategy.
✓
✓
Group cash flow.
Equity Ownership.
The success in maximising operational
excellence will be reflected through
increased profitability and cash flow.
Encouraged through bonus deferral
and shareholding requirements.
✓
✓
✓
Awards will vest at the end of three years subject
number of highly valued
per share.
to the achievement of:
Targeting the growth in
Total shareholder returns and earnings
An incentive to grow in these markets
in the longer term is provided through
EPS growth targeted by the LTIP.
A good incentive will aid the retention
of key people.
The success in maximising operational
excellence will be measured through the
long-term EPS growth targeted by the
LTIP. In addition, sustained value generation
will be reflected in the share price of the
Company which will be measured through
the Company’s TSR performance under
the LTIP.
✓
Encouraged through the alignment of
interests with shareholders by Executives
becoming locked-in shareholders.
✓
Encourages all employees to become
shareholders in the Company providing
a focus on growth and long-term
shareholder value creation.
77
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
Director’ Remuneration Policy continued
Implementation of Remuneration Policy in the 2017/18 financial year
The Remuneration Committee proposes to implement the policy for the 2017/18 financial year as set out below:
Element of remuneration
Implementation in 2016/17
Implementation in 2017/18
Salary
Executive Directors received a 2% increase
on 1 February 2016 (all employee rise 2.5%).
As a result, the salaries for the Executive
Directors are:
Executive Directors will receive a 2%
increase on 1 February 2017 (all employee
rise 2%). As a result, the salaries for
the Executive Directors are:
• Lance Batchelor: £676,260.
• Jonathan Hill: £416,160.
Benefit and pensions
The maximum employer pension contribution /
salary supplement is 20% of salary.
Executive Directors received the following:
• Lance Batchelor: 15% of salary comprising the
employer contribution into the Saga Pension
Scheme (DB) and a salary supplement in lieu
of pension.
• Lance Batchelor: £689,785.
• Jonathan Hill: £424,483.
No change in policy.
The current Executive Directors both opted
to cease further accrual under the Saga
Pension Scheme in 2016 and therefore
will receive the following:
• Lance Batchelor: 15% of salary
supplement in lieu of pension.
• Jonathan Hill: 15% of salary comprising the
• Jonathan Hill: 15% of salary supplement
employer contribution into the Saga Pension
Scheme (DB) and a salary supplement in lieu
of pension.
in lieu of pension.
The annual bonus is paid in cash and
deferred shares.
No change in the annual bonus
opportunities or deferral mechanics.
Two thirds of the total bonus to be
paid immediately in cash and one-third
deferred into shares for three years.
Performance measures were:
• Group PBT1 – 60%
• Group cash flow2 – 20%
• Personal objectives – 20%
(See page 83 for the FY16/17 targets).
The annual bonus performance measures
and weightings have been amended to:
• Group PBT – 55%
• Group cash flow2 – 15%
• Personal objectives – 30%
Annual Bonus Plan and
Deferred Bonus Plan
Maximum Annual Bonus Plan
is 150% of salary.
Normal maximum bonus
opportunity as a percentage
of salary:
• Group Chief Executive
Officer – 150%
• Group Chief Financial
Officer – 125%
78
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Element of remuneration
Implementation in 2016/17
Implementation in 2017/18
Long-Term Incentive Plan
Maximum value of LTIP grant
is 200% of salary.
No change in the LTIP grant levels and no change
to the performance measures and their weightings
from 2015 award.
Normal maximum LTIP award
as a percentage of salary:
• Group Chief Executive
Officer – 200%
2016 LTIP award:
• 50% EPS – EPS growth of 5% p.a. for 25% of
this element of the award to vest with full
vesting occurring for EPS growth of 12% p.a.
• Group Chief Financial
• 50% Comparative TSR performance of the
Officer – 150%
Company compared to the FTSE 250 (excluding
real estate and equity investment trusts) – 25%
of this element of the award vesting for median
TSR comparative performance with full vesting
at upper quartile.
All employee share awards Saga continued to operate the Share Incentive
Plan for all employees in 2016, with a free share
award made in July 2016 of £300 to all eligible
full-time employees.
Chairman & Non-
Executive fees
Chairman fee £280,500
Board fee £62,424
Committee Chair fee £10,000
Senior Independent Director fee £20,000
Notes:
1 Measured as profit before tax excluding derivatives and the Ogden impact.
2 Defined as net available cash generation.
2017 LTIP award:
• No change in the LTIP grant levels and
no change to the type of performance
measures.
• Introduction of a new additional measure
of Organic EPS.
• A reweighting of the performance
measures to reflect the new EPS
component as follows:
– 30% Basic EPS – growth of 5% p.a.
for 25% of this element of the award
to vest with full vesting occurring for
EPS growth of 12% p.a.
– 30% Organic EPS – growth of 12% p.a.
for 25% of this element of the award to
vest with full vesting occurring for EPS
growth of 21% p.a.
– 40% Comparative TSR performance
– the relative TSR comparator group
and the vesting schedules for this
element remain unchanged from
the 2016 award.
• Further details of the rationale for
the changes are outlined on the
following page.
Saga will continue to provide all employees
with the opportunity to participate in all
employee equity arrangements.
2% rise (in line with Group employees)
for the Chairman fee and Board fee (no
change in Committee Chair fee or Senior
Independent Director fee). Chairman and
Non-Executive fees will increase with effect
from 1 June 2017:
• Chairman fee £286,110
• Board fee £63,672
• Committee Chair fee £10,000
• Senior Independent Director £20,000
79
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
Director’ Remuneration Policy continued
2017 LTIP performance conditions and targets
As part of the strategic business review conducted in the year, the Remuneration Committee considered the performance
conditions and targets for the 2017 LTIP award to ensure that they aligned with, and supported, the strategic business plan.
Following the findings of this review, the Remuneration Committee is proposing to make the changes set out below for the 2017
LTIP award:
• To ensure EPS growth is aligned with the strategic plan by introducing an additional performance measure of growth excluding
historic claims performance ('Organic EPS') which will govern half of the EPS element of the award. The existing 'Basic EPS'
measure will remain unchanged.
• Adjust the weighting of the performance conditions between EPS growth and comparative TSR, to increase the component
subject to EPS from 50% to 60% to ensure sufficient focus is provided on the new EPS measure.
The introduction of the Organic EPS measure allows the significant acceleration of growth which is called for over and above that
which has been delivered since the IPO to be recognised and targeted. The Group has worked hard to build and develop the
travel business since the IPO to provide a diversified profit stream from a range of products and services in addition to the
insurance business. An assessment of Organic EPS allows the Company to reward and incentivise the Executive Directors and
the Executive Team to deliver this step change in growth. Whilst this growth is also reflected in the Basic EPS, the Committee felt
that the material impact of historic insurance claims performance on the outturn dilutes the focus on this key strategic objective of
delivering a step change in growth; and therefore, that a separate measure purely focusing on this was required.
The retention of the Basic EPS growth measure ensures that the Executive Directors and Executive Team continue to also be
focused on delivering the total performance of the business. The targets for the two elements of EPS growth are as below:
EPS measure
Basic EPS
Organic EPS
Threshold
(25% vesting)
Maximum
(100% vesting)
5% p.a.
12% p.a.
12% p.a.
21% p.a.
In setting the targets for the Organic EPS performance condition, the Remuneration Committee has reviewed the target range
against business forecasts and the historic Organic EPS growth of the Group since the IPO.
80
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC The chart below illustrates the proposed Organic EPS targets for the 2017 award and demonstrates a step change from the
historic performance of the Company in line with the Company’s strategic ambitions. The Remuneration Committee is
comfortable that the range for the 2017 LTIP award is appropriately stretching and reflects the strong forecasted growth in the
business performance.
EPS for maximum
vesting (21% p.a.)
Growth post-IPO whilst investing in
diversifying business offering
9.0
8.1
6.7
9.0
Step change in
future growth
EPS for threshold
vesting (12% p.a.)
21
14
7
0
)
p
(
i
S
P
E
c
s
a
b
c
n
a
g
r
o
i
i
g
n
y
l
r
e
d
n
u
d
e
t
s
u
d
A
j
2014
2015
2016
2017
...
2020
The Committee is retaining the mechanics of the relative TSR element which will remain the same as the 2016 award with
comparative TSR performance of the Company compared to the FTSE 250 (excluding real estate and equity investment trusts) –
25% of this element of the award vesting for median TSR comparative performance with full vesting at upper quartile.
81
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Directors’ Remuneration Report
Annual Report on Remuneration
Single total figure of remuneration (audited)
Executive and Non-Executive Directors
The table below sets out the single total figure of remuneration and breakdown for each Director in respect of the 2016/17
financial year. Comparative figures for the 2015/16 financial year have also been provided. Figures provided have been calculated
in accordance with the UK disclosure requirements: the Large and Medium-Sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 (Schedule 8 to the Regulations).
Executive Directors
Lance Batchelor
(Group Chief Executive
Officer)
Jonathan Hill1
(Group Chief Financial
Officer)
Non-Executive Directors
Philip Green
(Senior Independent
Non-Executive
Director, Nomination
Committee Chair)
Ray King
(Non-Executive Director,
Audit Committee Chair)
Orna NiChionna
(Non-Executive Director,
Risk Committee Chair)
Gareth Williams
(Non-Executive Director,
Remuneration
Committee Chair)
Bridget McIntyre5
(Non-Executive Director)
Andrew Goodsell6
(Chairman)
James Arnell7
Period
Salary/fees
£
2016/17
2015/16
676,260
663,000
2016/17
2015/16
416,160
334,246
2016/17
2015/16
91,616
91,050
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
71,883
74,983
71,883
66,650
71,883
70,816
98,026
5,933
278,667
490,838
–
–
Taxable
benefits2
£
30,403
28,095
24,185
19,748
–
–
–
–
–
–
–
–
–
–
45,373
45,071
–
–
Bonus
£
LTIP
£
Pension3
£
Other4
£
Total
£
684,455
676,456
134,224
781,678
351,003
325,699
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
202,363
127,514
80,876
74,680
–
–
–
–
–
–
–
–
–
–
–
389,567
–
–
–
–
–
232,481
–
–
–
–
–
190,000
2,201,798
1,600,287
872,224
944,373
–
–
–
–
–
–
–
–
–
–
–
–
–
–
91,616
91,050
71,883
74,983
71,883
66,650
71,883
70,816
98,026
5,933
526,403
1,157,957
–
–
Notes:
1 Jonathan Hill joined Saga on 7 April 2015 and his salary, taxable benefits, pension and bonus in respect of 2015/16 relate to his time in the role.
2 The types of benefits provided are set out in the Remuneration Policy section of the report.
3 Reflects the value of the DB pension accrual in the year and the pension cash supplement – see table on page 86 for further details.
4 Buyout award of £190,000 was made to Jonathan Hill on recruitment in the form of Saga shares (101,932 based on Saga’s closing share price on 7 April
2015 of 186.4p). In determining this amount the Committee applied the 'buyout' element contained in the recruitment policy. Half of the award vested
on 7 April 2016 with a value of £105,233; the remaining half vests on 7 April 2017. There are no further performance conditions.
5 Bridget McIntyre has been a member of the Board throughout the year, and was a Non-Executive Director of a subsidiary company, Acromas Insurance
Company Limited, until 31 August 2016, for which she received £10,000 per annum. From 1 September, she attended Board meetings of another
subsidiary company, Saga Services Limited (initially as an observer and then in her role as Senior Independent Director which she formally took up
on 22 March 2017 following FCA approval), for which she receives £72,424 per annum.
6 The 2015/16 amounts for Andrew Goodsell relate to his period as Executive Chairman from 1 February 2015 to 30 June 2015 and his fees as Non-
Executive Chairman for the period from 1 July 2015 to 31 January 2016 (£160,416). He continues to receive taxable benefits which are legacy
arrangements from his employment as Executive Chairman and comprise a leased car with associated fuel, and healthcare.
7 James Arnell was a Non-Independent Non-Executive Director who did not receive any fee from Saga plc who left the Board on 22 April 2016.
82
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Annual bonus
In respect of the 2016/17 financial year, the bonus awards payable to Executive Directors were agreed by the Remuneration
Committee having reviewed the Company’s results. Details of the targets used to determine bonuses in respect of the 2016/17
financial year and the extent to which they were satisfied are shown in the table below. These figures are included in the single
figure table.
Annual
bonus value for
Annual bonus value achieved
(% of salary)
Threshold and
Percentage of
Percentage
Threshold
Target
Maximum
Maximum
Target
of Maximum
performance
performance
performance
Actual
performance
performance
performance
Lance
Jonathan
Weighting
required
required
required
performance
(% of max)
achieved
achieved
Batchelor
Hill
60% £181.9m £187.3m £190.8m £187.4m 20%-100% 100.1%
60.8%
20%
61.6%
64.4%
66.3%
88.4% 20%-100% 137.3% 100.0%
54.7%
30.0%
45.6%
25.0%
20%
100%
See below for details of the
2016/17 personal objectives
and their achievement
0%-100%
55.0%
16.5%
13.8%
67.5% 101.2%
84.3%
£684,455 £351,003
Performance
condition
Group PBT1
Group cash
flow2
Personal
objectives
Total
Total £
Notes:
1 Underlying profit before tax (profit before tax excluding derivatives and the Ogden impact).
2 Defined as net available cash generation.
3 Under the terms of the Annual Bonus Plan, 20% for each element (PBT and cash flow) is payable for achieving the threshold performance increasing to
60% for target performance and 100% for achieving maximum performance. Achievements between these points are calculated on a straight-line basis.
Ogden rate change
The Committee considered very carefully whether the Group PBT should be adjusted for the additional £4m increase in insurance
claims liabilities required as result of the change in the Ogden rate. In its discussions, the Committee considered the following:
• The Committee felt that the provisioning undertaken by the Executive Directors and Executive Team in anticipation of the
change to the Ogden rate was to a very high standard; however, the totally unexpected rate announced resulted in a modest
increase in the provision by £4m.
• Any adjustment would impact bonuses across the wider Executive Team, not just those involved in the insurance business,
given Saga’s diverse business outside insurance. The Committee did not believe this was proportionate.
• The announcement on 27 February 2017 fell outside the Company’s 2016/17 financial year and therefore the Committee felt that
this would be a retrospective change to performance targets at a point where the Executive Directors and Executive Team could
feel justified in believing that the basis on which bonuses would be paid for the 2016/17 financial year had been determined.
• The Committee also considered the shareholder experience following the announcement which has seen the Company’s share
price rise. This gave the Committee comfort that shareholders felt that the Company had managed any impact well. Further, the
Company has not changed its dividend payment plans because of the modest increase in the liabilities.
After careful consideration of the above factors the Committee determined to use the Group PBT, excluding the £4m cost of the
Ogden rate change, to determine the bonus outcomes. The following table shows the impact on the level of bonus earned on the
Group PBT element with and without adjustment for the additional £4m provision:
Group PBT elemet of bonus
Underlying profit before tax1
Profit before tax including Ogden impact
Difference
Note:
1 Profit before tax excluding derivatives and the Ogden impact.
Amount of bonus earned
CEO
CFO
£369,994
£278,233
£91,761
£189,741
£142,683
£47,058
83
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
Annual Report on Remuneration continued
The following table sets out the level of satisfaction of the personal objectives for the Group Chief Executive Officer and
Group Chief Financial Officer:
Name
Weighting
Objective
Details
Lance Batchelor
Group Chief
Executive Officer
10%
Customer numbers
(insurance plus
passengers)
Total customer / policy count
(insurance plus passengers) of
3,404,455.
5%
Delivery of required
customer outcomes
5%
Group-wide
employee
engagement
Achieve persistency rates of
76.4% home and 72.7% motor.
No significant regulatory or brand
failures. Measured through regulatory
intervention, assessment of how far
we move outside of agreed risk
tolerance, level of customer
complaints and poor PR.
A review of protection for vulnerable
customers as part of the five year
plan to reward customer loyalty.
Achieve employee engagement
index score of 85% and response
rate of above 80%.
Achievement of objective
3% – Customer numbers
were not achieved but
persistency rates in
home and motor were
partially achieved.
5% – Achieved in full.
3% – Response rate was
above 80%, employee
engagement index of
81% with 9/10 categories
improving.
The overall performance against these personal objectives equated to 55% of the bonus for this element being achieved.
Jonathan Hill
Group Chief
Financial Officer
10%
Customer numbers
(insurance plus
passengers)
Total customer / policy count
(insurance plus passengers)
of 3,404,455.
5%
Delivery of required
customer outcomes
5%
Group-wide
employee
engagement
Achieve persistency rates of
76.4% home and 72.7% motor.
No significant regulatory or brand
failures. Measured through regulatory
intervention, assessment of how far
we move outside of agreed risk
tolerance, level of customer
complaints and poor PR.
A review of protection for vulnerable
customers as part of the five year
plan to reward customer loyalty.
Achieve an increase in employee
engagement in CFO functions of
5% year-on-year.
3% – Customer numbers
were not achieved but
persistency rates in home
and motor were partially
achieved.
5% – Achieved in full.
3% – Engagement improved
by 2% with all 10 categories
of engagement improving
in CFO functions.
The overall performance against these personal objectives equated to 55% of the bonus for this element being achieved.
The bonus for the 2016/17 financial year will be paid two thirds in cash and one third deferred in shares which will vest after three
years based on continued employment.
84
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Long-term incentives vesting during in 2016/17 (audited)
The LTIP awards granted on 30 June 2014 have not yet vested but as performance was substantially completed during the
2016/17 financial year, an estimate of the vesting and the indicative value of the awards has been provided below. This figure
will be updated in the 2017/18 Annual Report on Remuneration to reflect the final vesting outcome.
The 2014 LTIP is equally weighted between EPS and relative TSR performance conditions. The EPS growth is measured to
the 2016/17 year end and the three year TSR condition concluding on 30 June 2017.
The EPS over the period has grown by 15.7% p.a. against the range of 7-12% p.a. equating to a vesting of 100% of the
EPS element.
The Company has assessed relative TSR performance against the FTSE 250 (excluding real estate and investment trusts) to
31 January 2017. Saga ranked below the median equating to an indicative vesting of 0%.
The table presents the indicative vesting of the 2014 LTIP award for Lance Batchelor and Andrew Goodsell, who was awarded
the LTIP as Executive Chairman in 2014 (prior to his change in role of Non-Executive Chairman).
Name
Lance Batchelor
Andrew Goodsell2
Award level
(% of salary)
Portion of
EPS vesting
Estimate of
TSR vesting1
Estimate of
total vesting
(as % of award)
Indicative
LTIP value for
single figure
200%
150%
100%
100%
0%
0%
50.0%
16.7%
£676,456
£202,363
Notes:
1 Based on TSR performance against the peer group to 31 January 2017.
2 2014 LTIP of 630,374 share options granted in relation to his service as Executive Chairman in June 2014.
No discretion has been exercised by the Committee in determining the level of LTIP vesting.
The 2014 LTIP award and its treatment for Andrew Goodsell was set out on page 90 of our 2015 annual report under the heading
of 'Remuneration arrangements for our outgoing Executive Chairman'.
Andrew Goodsell was granted 630,374 share options under the 2014 LTIP in his capacity as Executive Chairman. As a good
leaver in reference to his change in role from Executive to Non-Executive Chairman, his award was pro-rated to the amount of the
vesting period completed on the date of cessation as Executive Chairman (one-third of the original award) but remained subject to
the achievement of the performance conditions for the award.
Long-term incentives awarded in 2016/17 (audited)
The table below sets out the details of the long-term incentive awards granted in the 2016/17 financial year where vesting will be
determined according to the achievement of performance conditions that will be tested in future reporting periods:
Name
Lance Batchelor
Award
type
LTIP
Basis on
which award
made
Face value
of award
Shares
awarded
Annual £1,352,520
654,656
Jonathan Hill
LTIP
Annual
£624,240
302,149
Percentage of
award vesting
at threshold
performance (%)
Maximum
percentage of
face value that
could vest (%)
Performance
conditions
25%
25%
100%
100%
Relative TSR and
EPS equally weighted
Relative TSR and
EPS equally weighted
The awards were granted on 16 May 2016; the face value is calculated with reference to the share price on 15 May 2016 of
206.6p. The performance conditions are set out on page 71 in the Implementation of Remuneration Policy in the 2016/17
financial year. The awards will vest, subject to the level of performance achieved, on 16 May 2019.
Pension entitlements (audited)
Pension benefits were provided to Executive Directors through the Saga Pension Scheme (a Defined Benefit scheme) and a
salary supplement.
Employer contributions were made into the Saga Pension Scheme until the Executive Directors opted to cease further accrual
under the Scheme on 31 March 2016. The Executive Directors were also provided a pension salary supplement between the
difference of the employer contribution into the Saga Pension Scheme and 15% of the Executive Director’s base salary.
85
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Directors’ Remuneration Report
Annual Report on Remuneration continued
The table below outlines the accrued pension amounts for the Executive Directors, the valuation of the Defined Benefit accruals
made in the financial year calculated in accordance with the reporting guidelines and the pensions salary supplement, to derive
a pensions benefit value for the single total figure of remuneration.
Name
Lance Batchelor
Jonathan Hill
Age at
31/01/2017
53
48
Pensionable
service at
31/01/2017
2 years,
9 months
1 year,
10 months
Accrued pension
Single figure numbers
Extra information disclosed
under 2013 Directors’
Remuneration Regulations
01/02/2016
31/01/2017
Pension salary
supplement1
Value x 20
over year3
Total pension
benefits
£4,334
£6,213
£97,8442
£36,380
£134,224
£2,000
£3,156
£58,9562
£21,920
£80,876
Normal
retirement
age
65
65
Notes:
1 Pension salary supplement paid is the difference between the employer contribution into the Saga Pension Scheme and 15% of the Executive Director’s
base salary.
2 Represents the amount paid to the Executive Director being the difference between 15% of the Executive Director’s base salary and the employer
contribution into the Saga Pension Scheme from 1 February 2016 to 31 March 2016, and 15% of the Executive Director’s base salary from 1 April 2016
to 31 January 2017.
3 Reflects the growth in the Executive Director’s pension accrued in the Saga Pension Scheme over the year multiplied by 20, less the contributions by the
Executive Director in the year.
The maximum employer pension contribution or salary supplement in lieu of pension as per the Remuneration Policy is 20%
of salary. The Executive Directors can choose to opt out of the pension scheme and receive a cash allowance on their full
base salary.
Having opted out of further accruals under the Saga Pension Scheme, Lance Batchelor and Jonathan Hill will receive a 15%
salary supplement in lieu of pension for the 2017/18 financial year.
Non-Executive Directors’ annual fees
See table on page 82.
Payments to past Director/payments for loss of office (audited)
There were no payments to past Directors or payments for loss of office during the financial year.
Statement of Directors’ shareholding and share interests
See the tables on page 75.
Fees retained for external non-executive directorships
Executive Directors may hold positions in other companies as Non-Executive Directors and retain the fees.
Lance Batchelor is a Trustee of the charity White Ensign Association and is a Trustee of the National Gallery. He does not receive
a fee for either position. Jonathan Hill holds no external Directorships.
86
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Comparison of overall performance and pay
The graph below shows the value of £100 invested in the Company’s shares since listing compared with the FTSE 250 index.
The graph shows the TSR generated by both the movement in share value and the reinvestment over the same period of
dividend income.
The Remuneration Committee considers that the FTSE 250 is the appropriate index because the Company has been a member
of this since listing. This graph has been calculated in accordance with the Regulations. It should be noted that the Company
listed on 23 May 2014 and therefore only has a listed share price for the period of 23 May 2014 to 31 January 2017.
150
125
100
)
0
0
1
o
t
d
e
s
a
b
e
r
(
R
S
T
75
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Jan-17
Saga
FTSE 250 Index
Group Chief Executive Officer historical remuneration
The table below sets out the total remuneration delivered to the Group Chief Executive Officer using the methodology applied to
the single total figure of remuneration. The Remuneration Committee believes that the remuneration payable in its earlier years as
a private company to the Executive Chairman does not bear comparative value to that which has been and will be paid to the
Group Chief Executive Officer, and has therefore chosen only to disclose remuneration for the Group Chief Executive Officer:
Group Chief Executive Officer
Total single figure
Annual bonus payment level achieved (percentage of maximum opportunity)
LTIP vesting level achieved (percentage of maximum opportunity)
Option vesting level achieved (percentage of maximum opportunity)
2016/17
2015/16
2014/15
£2,201,798 £1,600,287
£5,328,7021
67.5%
50.0%2
n/a
78.6%
80.7%
n/a
n/a
n/a
n/a
Notes:
1 The Group Chief Executive Officer joined the Company on 24 March 2014 the remuneration shown is therefore not for the full financial year. Included
within the single figure is a cash award of £4m with vesting based on continued employment. 25% immediately on the IPO, 25% on the first anniversary
of the award and 50% on the second anniversary; this was part of the buyout on the recruitment of the Group Chief Executive Officer to compensate for
awards lapsing on his ceasing employment with his former employer.
2 Based on indicative vesting as at 31 January 2017. The award will vest on 30 June 2017. The final vesting outcome will be stated in the 2017/18
annual report.
There was no long-term incentive plan or share option plan operated prior to listing.
Relative importance of the spend on pay
The table below sets out the relative importance of spend on pay in the 2016/17 financial year and 2015/16 financial year
compared with other disbursements. All figures provided are taken from the relevant company accounts.
Profit distributed by way of dividend
Total tax contributions1
Overall spend on pay including Executive Directors2
(£m)
86.1
74.9
131.2
(£m)
70.4
61.6
Percentage
change
22.3%
21.6%
300.1
(56.3%)
Disbursements from profit
in 2016/17 financial year
Disbursements from profit
in 2015/16 financial year
Note:
1 Total tax contributions include corporation tax, national insurance contributions, VAT and Air Passenger Duty. 2015/16 includes £10.1m in respect
of discontinued operations. Excluding this amount, the percentage change is 45.4%.
2 2015/16 includes £174.2m in respect of discontinued operations. Excluding this amount, the percentage change is 4.2%.
87
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Directors’ Remuneration Report
Annual Report on Remuneration continued
Change in the Group Chief Executive Officer’s remuneration compared with employees
The following table sets out the change in the remuneration paid to the Group Chief Executive Officer from 2015/16 to 2016/17
compared to the average percentage change for employees.
The Group Chief Executive Officer’s remuneration disclosed in the table below has been calculated to take into account base
salary, taxable benefits excluding pension, and annual bonus (including any amount deferred).
The employee pay has been calculated using the following elements: annual salary – base salary and standard monthly
allowances; taxable benefits – car allowance and private medical insurance premiums; annual bonus – Company bonus,
management bonus, commission and incentive payments.
Salary
Taxable benefits
Annual Bonus
2016/17
2015/16
Percentage
change
2016/17
2015/16
Percentage
change
2016/17
2015/16
Percentage
change
£676,260
£663,000
2%
£30,403
£28,095
8% £684,455
£781,678
(12%)
£27,380
£24,865
10%
£714
£638
12%
£3,259
£3,293
(1%)
Group Chief
Executive
Officer1
Average per
employee
Note:
1 The Group Chief Executive Officer also received cash awards of £1,000,000 in 2015/16 and £2,000,000 in 2016/17 as part of his recruitment as
compensation for awards lapsing on his ceasing employment with his former employer.
Statement of conditions elsewhere in the Company
Each year, prior to reviewing the remuneration of the Executive Directors and the members of the Executive Team, the
Remuneration Committee considers a report prepared by the Group HR Director detailing remuneration practice across the
Company. The report provides an overview of how employee pay compares to the market and any material changes during
the year, and includes detailed analysis of basic pay and variable pay changes within the UK.
While the Company does not directly consult with employees as part of the process of reviewing executive pay and formulating
the Remuneration Policy, the Company does receive an update and feedback from the broader employee population on an
annual basis using an engagement survey which includes a number of questions relating to remuneration. The Company
does not use remuneration comparison measurements.
The Group aims to provide a remuneration package for all employees that is market competitive and operates the same core
structure as for the Executive Directors. The Group operates employee share and variable pay plans, with pension provisions
provided for all Executive Directors and employees. In addition, any salary increases for Executive Directors are expected to
be generally in line with those for UK-based employees.
Cascade of incentives through the organisation
Organisational level
Employee #
Group Chief Executive Officer
Group Chief Financial Officer
Executive Team
Directors
Senior leadership
1
1
6
18
65
Other bonused employees
Non-bonused employees
2,694
1,892
Maximum bonus
percentage of salary
Maximum
proportion of bonus
payable in cash
Maximum
proportion of bonus
deferrable in shares
Maximum
LTIP award
SIP
150%
125%
100%
60%
40%
20%
n/a
67%1
67%1
67%1
100%
100%
100%
n/a
33%1
33%1
33%1
0%
0%
0%
n/a
200%
150%
100%
60%
40%
n/a
n/a
✓
✓
✓
✓
✓
✓
✓
Note:
1 The maximum level of deferral of bonus in shares for these employees is 50% with no minimum deferral.
88
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Statement of implementation of the Remuneration Policy in the 2017/18 financial year
See the tables on pages 78-79.
Consideration of shareholder views
The Remuneration Committee takes the views of the shareholders seriously and these views are taken into account in shaping
remuneration policy and practice. Shareholder views are considered when evaluating and setting remuneration strategy and the
Remuneration Committee welcomes an open dialogue with its shareholders on all aspects of remuneration.
Shareholder voting at general meeting
The Director Remuneration Policy was put to a binding vote at the AGM on 23 June 2015. The Chairman’s Annual Statement and
the Annual Report on Remuneration were subject to an advisory vote. Below we outline the voting outcomes in respect of
approving the Director Remuneration Report and approving the Director Remuneration Policy. Based on the positive level of
support received from shareholders both on the Policy and its implementation the Committee is comfortable that no changes are
required to the Policy or its implementation for 2017/18.
Resolution
To approve the Directors’
Remuneration Report
To approve the Directors’
Remuneration Policy
Votes
for
% of
votes
cast
Votes
against
% of
votes
cast
Votes
cast in
total
% of issued
share capital
voted
Votes
withheld
661,486,807
91.20
63,828,867
8.80 726,474,388
64.98
1,158,714
824,261,354
99.63
3,031,154
0.37 827,292,508
74.00
1,631,155
Advisers to the Remuneration Committee
Following a selection process carried out by the Board prior to the IPO of the Company, the Committee has engaged the services
of PwC as independent remuneration adviser.
During the financial year, PwC advised the Remuneration Committee on all aspects of the remuneration policy for Executive
Directors and members of the Executive Team. PwC also provided the Company with tax and assurance work during the year.
The Remuneration Committee reviewed the nature of the services provided and was satisfied that no conflict of interest exists or
existed in the provision of these services.
PwC is a member of the Remuneration Consultants Group and the voluntary code of conduct of that body is designed to ensure
objective and independent advice is given to remuneration committees. Fixed fees of £45,000 (2015/16: £65,000) were provided
to PwC during the year in respect of remuneration advice received.
Gareth Williams
Chair, Remuneration Committee
28 March 2017
89
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Directors’ Report
The Directors present their report together with the audited consolidated financial statements for the year ended 31 January 2017
in accordance with section 415 of the Companies Act 2006 which were approved by the Board on 28 March 2017.
Management report
The Directors’ Report, together with the Strategic Report set out on pages 01-39 form the Management Report for the purposes
of Disclosure and Transparency Rule (‘DTR’) 4.1.5R.
Statutory information contained elsewhere in the annual report
Information required to be part of this Directors’ Report can be found elsewhere in the annual report as indicated in the table
below and is incorporated into this report by reference.
Information
Likely future developments in the business of the Company or its subsidiaries
Corporate social responsibility
Greenhouse gas emissions
Location in annual report
Pages 01-39
Pages 16-18
Pages 18-19
Employees (employment of disabled persons, employee engagement and policies)
Pages 16-17
Corporate Governance Statement
Directors’ details (including changes made during the year)
Related party transactions
Employee share schemes (including long-term incentive schemes)
Financial instruments: Information on the Group’s financial instruments and risk
management objectives and policies, including our policy for hedging
Additional information
Pages 40-66
Pages 45 and 48-51
Note 32 on page 163
Note 29 on pages 159-160
Note 2.3 on pages 108-120
Pages 171-173
Results and dividends
The Group made a profit after taxation of £157.3m for the financial year ended 31 January 2017. The Board paid an interim
dividend of 2.7p per share and proposes to pay, subject to shareholder approval at the 2017 AGM, a final dividend of 5.8p net per
share in respect of the year ended 31 January 2017.
Going concern
The going concern statement required by the Listing Rules and the UK Corporate Governance Code (the ‘Code’) is set out in the
compliance statement on page 42.
Fair, balanced and understandable
The Board’s statement regarding whether the information contained within the annual report is fair, balanced and understandable
is contained on page 42.
Viability statement
The Directors’ viability statement is set out on page 42.
Political donations
No political donations were made during the year.
Directors’ interests
A list of the Directors, their interests in the long-term performance share plan, contracts and ordinary share capital of the
Company are given in the Directors’ Remuneration Report on pages 67-89.
Rules on appointment and replacement of Directors
All Directors will seek re-election at the AGM in accordance with the Company’s articles of association and the recommendations
of the Code, with the exception of Philip Green, who has resigned from the Board with effect from 31 March 2017.
A Director may be appointed by ordinary resolution of the shareholders in a general meeting following nomination by the Board
or a member (or members) entitled to vote at such a meeting. In addition, the Directors may appoint a Director to fill a vacancy
or as an additional Director, provided that the individual retires at the next AGM.
A Director may be removed by the Company in certain circumstances set out in the Company’s articles of association or by an
ordinary resolution of the Company.
90
GovernanceANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Pursuant to the Relationship Agreement
entered into between the Company and
each of the Private Equity Investors
(as defined on page 92) each Private
Equity Investor was entitled to appoint
one Non-Executive Director to the Board
for so long as it was entitled, either
directly or indirectly through its voting
rights in Acromas Bid Co Limited
(‘ABCL’), to exercise or to control the
exercise of the equivalent of 10% or
more of the votes able to be cast on
all or substantially all matters at general
meetings of the Company. The Company
was notified that ABCL had sold its last
tranche of shares on 22 April 2016.
Following the sale, James Arnell,
Non-Executive Director appointed by
Charterhouse, resigned from the Board
of the Company with immediate effect
and the Relationship Agreement ceased
to exist.
Directors’ indemnities
and insurance
As at the date of this report, indemnities
are in force under which the Company
has agreed to indemnify the Directors,
to the extent permitted by law and the
Company’s articles of association, in
respect of all losses arising out of, or in
connection with, the execution of their
powers, duties and responsibilities, as
Directors of the Company or any of its
subsidiaries. No amount was paid under
any of these indemnities or insurances
during the year other than the applicable
insurance premiums. Directors’ and
officers’ liability insurance is in place as
at the date of this report, at an amount
which the Board considers adequate.
This is subject to an annual review.
Share capital and interests
in voting rights
The Company’s share capital (including
movements during the year) is set out on
page 157. At the date of this report
the Company’s issued share capital
comprised a single class of share capital
which is divided into ordinary shares
of 1p each. As at 31 January 2017,
1,118,005,405 ordinary shares of 1p each
have been issued, are fully paid up and
quoted on the London Stock Exchange.
On 22 April 2016, the Company was
notified that ABCL had sold the
remaining 352,674,283 shares held
by them, representing approximately
31.54% of the Company’s issued ordinary
share capital. Following the sale, ABCL
ceased to be shareholder of the Company.
In accordance with DTR5, the Company has been notified of the following interests in 3% or more of the Company’s
total voting rights as at 31 January 2017:
Name
HSBC Global Custody Nominees (UK Limited)
Deutsche Bank AG, London Branch
Artemis Investment Management LLP on behalf
of discretionary funds under management
Ordinary
shares
56,154,560
81,953,949
121,840,916
Percentage
of capital
5.02%
7.33%
10.9%
Nature
of holding
Direct
5.21% Direct and
2.12% SWAPs
Indirect
Subsequent to the year end, Henderson Group plc disclosed information in accordance with DTR5, on 28 February 2017,
disclosing a holding of 59,285,367 (5.30%, broken down as 4.97% Indirect and 0.32% CFD). Deutsche Bank AG has disclosed
information in accordance with DTR5 on three occasions. The most recent one being 22 March 2017, disclosing a holding of
103,659,855 (9.27%, broken down as 5.73% Direct and 3.54% SWAPs). On 23 March 2017, Artemis Investment Management
LLP disclosed information in accordance with DTR5, disclosing a holding of 111,601,253 ordinary shares (9.98%, Indirect).
Information regarding other interests in voting rights provided to the Company pursuant to the FCA DTRs is published on the
Company’s website and a Regulatory Information Service. Notification was also received by the Company during the year that
Goldman Sachs and Legal & General Group plc had notifiable interests but these ceased to be notifiable interests and are not
included in the table above.
91
GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Directors’ Report continued
Relationship Agreement
The Company had entered into an
agreement with ABCL as its controlling
shareholder as required under Listing
Rule (‘LR’) 9.2.2A R (2)(a), complied with
the independence provisions set out in
LR 6.1.4D R and had a constitution
that allowed for the election and
re-election of independent Directors to
be conducted in accordance with the
election provisions set out in LR 9.2.2E R
and LR 9.2.2F R, whilst the agreement
was in force.
As far as the Company is aware:
• the controlling shareholder and its
associates also complied with the
independence provisions referred
to; and
• the controlling shareholder complied
with its agreement to procure
compliance with the independence
provisions referred to above by
another controlling shareholder
and its associates.
The Relationship Agreement between
the Company, ABCL (the ‘Principal
Shareholder’) and certain funds
managed or advised by Charterhouse
Capital Partners, CVC Capital Partners
and Permira (the ‘Private Equity
Investors’) remained in force until the
later of (i) each of the Private Equity
Investors (together with its associates)
ceased to be entitled to exercise or
control the exercise, directly or indirectly,
of 10% or more of the votes able to be
cast on all or substantially all matters at
general meetings of the Company; or
(ii) the Principal Shareholder (together
with its associates) ceased to be
entitled to exercise or control the
exercise, directly or indirectly, of 30%
or more of the votes able to be cast
on all or substantially all matters at
general meetings of the Company.
As a result of the share placing
undertaken by ABCL on 21 April 2016,
ABCL held no shares in the Company,
Charterhouse ceased to have an interest
in the Company and the Private Equity
Investment Director nominated by them
resigned from the Board with effect from
22 April 2016.
Change of control – significant
agreements
A number of agreements take effect,
alter or terminate upon a change of
control of the Company including
following a takeover bid, for example
insurance, commercial contracts and
distribution agreements. The Group has
a number of contracts and arrangements
throughout the business where the legal
risk arising out of a change of control is
closely managed as part of the contractual
governance process. Inevitably, there
may be certain operational contracts that
could provide for a period of disruption
or higher operational charges if a change
of control clause was invoked. However,
at the current time, we are not aware of
any critical or material contracts that
pose such a threat.
The Senior Facilities Agreement and the
financing agreements in relation to the
new ship provide the Group with loan
and revolving credit facilities for general
financing purposes. In the event of a
change of control the facilities would
either require repayment or re-negotiation.
Further details on banking facilities are
shown in note 26 to the consolidated
financial statements.
The rules of the Company’s employee
share plans generally provide for the
accelerated vesting and/or release of
share awards in the event of a change
of control of the Company.
The Company does not have any
agreements with Directors or employees
which would pay compensation in the
event of a change of control.
Conflict of interest
Each Director is obliged to disclose any
potential or actual conflict of interest in
accordance with the Company’s conflict
of interest policy. The policy and
declarations made are subject to annual
review and Directors are required to
update any changes to declarations
as they occur. Internal controls are in
place to ensure that any related party
transactions are conducted on an
arm’s length basis.
Authority to allot/purchase
own shares
A shareholders’ resolution was passed
at the AGM on 21 June 2016 which
authorised the Company to make market
purchases within the meaning of section
693 (4) of the Companies Act 2006 (the
‘Act’) (up to £1,118,005.41 representing
10% of aggregate nominal share capital
of the share capital of the Company
following Admission). This is subject to
a minimum price of 1p and a maximum
price of the higher of 105% of the
average mid-market quotations for
five business days prior to purchase or
price of last individual trade and highest
current individual bid as derived from the
London Stock Exchange trading system.
The Company did not exercise this
authority during the year ended
31 January 2017. The above authority
will expire at the forthcoming AGM and
a special resolution to authorise the
Company to make market purchases
representing 10% of current nominal
share capital will be proposed. The
authority to repurchase the Company’s
ordinary shares in the market will be
limited to £1,118,005.41 and will set
out the minimum and maximum
price which will be paid.
The Directors of the Company were also
granted authority at the 2016 AGM to
allot relevant securities up to a nominal
amount of £3,722,958. This authority will
apply until the conclusion of the 2017
AGM, where shareholders will be asked
to grant the Directors authority (for the
purposes of section 551 of the Act) to
allot relevant securities (i) up to an
aggregate nominal amount of £3,722,958;
and, (ii) comprising equity securities (as
defined in the Act) up to an aggregate
nominal amount of £7,445,916 (after
deducting from such limit any relevant
securities issued under (i) in connection
with a rights issue). These amounts will
apply until the conclusion of the AGM to
be held in 2018 or, if earlier, 31 July 2018.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Special resolutions will also be proposed
to give the Directors authority to make
non-preemptive issues wholly for cash
in connection with rights issues and
otherwise up to an aggregate nominal
amount of £559,002.70 and to make
non-preemptive issues wholly for cash in
connection with acquisitions or specified
capital investments up to an aggregate
amount of £559,002.70.
Rights attaching to shares
The rights attached to the shares are
governed by applicable law and the
Company’s articles of association
(which are available at http://corporate.
saga.co.uk/assets/downloads/corporate-
governance/saga-plc-articles-of-
association.pdf).
Ordinary shareholders have the right
to receive notice, attend and vote at
general meetings; and receive a copy of
the Company’s report and accounts and
a dividend when approved and paid.
On a show of hands, each shareholder
present in person, or by proxy (or an
authorised representative of a corporate
shareholder), shall have one vote. In the
event of a poll, one vote is attached to
each share held.
The notice of the AGM (the ‘Notice’)
states deadlines for exercising voting
rights and for appointing a proxy/proxies.
No shareholder owns shares with special
rights as to control.
Auditor
A resolution to appoint KPMG LLP (who
have indicated their willingness to act
after a formal audit tender process) as
our Auditor will be proposed at the 2017
AGM. Ernst & Young LLP were appointed
as auditors of the principal trading
companies within the Acromas group
in September 2007 and as auditors of
the Company on 24 September 2014.
following the Company’s incorporation
and insertion within the Group prior to
listing. The formal audit tender process
is explained in detail on page 61.
Disclosure of information
to the Auditor
Having made the requisite enquiries,
so far as each of the Directors is aware,
there is no relevant audit information
(as defined by section 418(3) of the
Companies Act 2006) of which the
Company’s Auditor is unaware and the
Directors have taken all the steps they
ought to have taken as Directors to make
themselves aware of any relevant audit
information and to ensure that the
Company’s Auditor is aware of
that information.
Annual General Meeting
The AGM will be held on 22 June 2017
at 11am at Enbrook Park, Sandgate,
Folkestone, Kent CT20 3SE. The Notice
contains an explanation of special
business to be considered at the meeting.
A copy of the Notice will be available on
our website, http://corporate.saga.co.uk
in due course.
Restrictions on the transfer
of shares
Other than where imposed by law
or regulation, or where the Listing
Rules require certain persons to obtain
clearance before dealing, there are no
restrictions regarding the transfer of
shares in the Company. The Company is
not aware of any agreement which would
result in a restriction on the transfer of
shares or voting rights.
Articles of association
Any amendment to the Company’s
articles of association may only be made
by passing a special resolution of the
shareholders of the Company.
Branches outside the UK
The Company does not have any
branches outside of the UK.
Post-balance sheet events
On 27 February 2017, the UK
Government announced its decision to
move the Ogden rate to -0.75% from
2.5%. The UK Government first
announced the decision to launch a
consultation process on a potential
downgrade to the Ogden rate in 2012.
In line with the prudent approach to
reserving, the Group has therefore
held a specific amount within its reserve
margin in anticipation of a reduction
in the Ogden rate.
This event has been treated as an
adjusting post-balance sheet event,
and as such a one-off, pre-tax impact
on profit of £4m has been reflected in
the Group’s results for the year ended
31 January 2017. Our older demographic
provides the Group with a defensive
advantage, with lower claims frequency
generating less exposure to large and
small bodily injury claims, and to periodic
payment orders (‘PPOs’). The Group
does not expect the Ogden rate change
to have a material impact on its
financial outlook.
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GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Directors’ Report continued
Directors’ responsibilities
As required under the Financial Conduct
Authority (‘FCA’) Disclosure Rules and
Transparency Rules (‘DTRs’), the
following statements are made by the
Board regarding the preparation of the
financial statements.
• present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
• make judgements that are reasonable
and prudent;
• provide additional disclosures when
The process for producing the
Company’s annual report and accounts
starts with clear direction for all those
involved, so that the final document
represents a balanced picture of our
activities throughout the year and so that
shareholders are given the information
they need to assess the performance,
business model and strategy.
The Directors are responsible for
preparing the annual report and
accounts in accordance with applicable
law and regulations. Company law
requires the Directors to prepare
Company and Group financial statements
for each financial year. Under that law,
the Directors are required to prepare
Group financial statements under
International Financial Reporting
Standards (‘IFRSs’) as adopted by the
European Union and applicable law
and Company financial statements
under United Kingdom Generally
Accepted Accounting Practice, including
Financial Reporting Standard 101
Reduced Disclosure Framework (‘FRS
101’). Under company law the Directors
must not approve the Company and
Group financial statements unless they
are satisfied that, to the best of their
knowledge, they give a true and fair view
of the state of affairs of the Company
and Group and of the profit or loss of
the Company and Group for that period.
In preparing the Company and Group
financial statements the Directors
are required to:
• present fairly the financial position,
financial performance and cash flows
of the Company and Group;
• select suitable accounting policies
in accordance with IAS 8 ‘Accounting
Policies, Changes in Accounting
Estimates and Errors’ and then
apply them consistently;
compliance with the specific
requirements in FRS 101 and IFRSs
as adopted by the European Union
are insufficient to enable users to
understand the impact of particular
transactions, other events and
conditions on the Company and
Group’s financial position and
financial performance; and
• state whether the Company and
Group financial statements have been
prepared in accordance with FRS
101 and IFRSs as adopted by
the European Union.
The Directors are responsible for keeping
adequate records that are sufficient to
show and explain the Company’s and
Group’s transactions and disclose with
reasonable accuracy at any time the
financial position of the Company and
the Group and enable them to ensure
that the Company and Group financial
statements comply with the Companies
Act 2006 and Article 4 of the IAS
Regulation. They are also responsible
for safeguarding the assets of the Group
and hence for taking reasonable steps
for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
The Directors are also responsible
for preparing the Strategic Report,
the Directors’ Report, the Directors’
Remuneration Report and the corporate
governance statement in accordance
with the Companies Act 2006 and
applicable regulations, including the
requirements of the Listing Rules and
the Disclosure and Transparency Rules.
Neither the Company nor the Directors
accept (and hereby exclude) any liability
to any person in relation to the annual
report except to the extent that such
liability is imposed by law and may
not be validly excluded. Accordingly,
any liability to a person who has
demonstrated reliance on any untrue or
misleading statement or omission shall
be determined in accordance with
section 90A and schedule 10A of the
Financial Services and Markets Act
2000, as amended.
Each of the Directors, who were in office
at the date of this report, whose names
and responsibilities are listed on pages
45 and 48-49, confirm that, to the best
of their knowledge:
• the Company and Group financial
statements, which have been prepared
in accordance with FRS 101 and
IFRSs as adopted by the European
Union, give a true and fair view of the
assets, liabilities, financial position and
profit of the Company and Group; and
• the Strategic Report contained on
pages 01-39 includes a fair review of
the development and performance of
the business and the position of the
Company and Group, together with a
description of the principal risks and
uncertainties that it faces.
By order of the Board
By order of the Board
V Haynes
Company Secretary
28 March 2017
Saga plc Company no. 08804263
94
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Independent Auditor’s Report to the members of Saga plc
Our opinion on the financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 January
2017 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
What we have audited
We have audited the financial statements of Saga plc for the year ended 31 January 2017, which comprise:
Group financial statements
Company financial statements
• the consolidated income statement
• the consolidated statement of comprehensive income
• the consolidated statement of financial position
• the consolidated statement of changes in equity
• the consolidated statement of cash flows
• the related notes 1 to 34 to the consolidated
financial statements
• the company balance sheet
• the company statement of changes in equity
• the related notes 1 to 5 to the company financial statements
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law
and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable
law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice, including Financial
Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’)).
Overview of our audit approach
Risks of material
misstatement
Audit scope
• Valuation of insurance contract liabilities
• Valuation of goodwill
• Revenue recognition
We have performed an audit of the complete financial information of 10 components
(2016: 7 components) and audit procedures on specific balances for a further 1 component
(2016: 4 components).
The divisions and entities where we performed full scope audit procedures accounted for 96%
(2016: 89%) of the Group’s Profit before tax, 92% (2016: 93%) of the Group’s revenue and 98%
(2016: 96%) of the Group’s Total assets.
Materiality
Overall Group materiality is £9.7m (2016: £9.0m) which represents approximately 5% of Profit before
tax from continuing operations.
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GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Independent Auditor’s Report to the members of Saga plc continued
Our assessment of risks of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit
strategy, the allocation of resources in the audit and the direction of efforts of the audit team. In addressing these risks, which are
the same risks as those included in our prior year opinion, we have performed the procedures below which were designed in the
context of the financial statements as a whole and, consequently, we do not express any opinion on these individual areas.
Valuation of insurance contract liabilities (£423.2m, 2016: £460.0m)
Risk
Our responses to the risks
Valuation of insurance contract
liabilities (£423.2m, 2016: £460.0m)
Refer to the Audit Committee Report
(page 58), accounting policy note 2.3(q)
and disclosure note 24.
For insurance contracts, estimates have to
be made both for the expected ultimate cost
of claims notified by the reporting date and
for the expected ultimate cost of claims
incurred but not yet reported at the reporting
date (IBNR). It can take a significant period of
time before the ultimate claims cost can be
established with certainty. Management
makes judgements in respect of the trends
in the frequency and severity of bodily injury
claims, the propensity for large claims to
settle as Periodical Payment Orders (PPOs),
the Ogden discount rate, being the discount
rate used by the Courts to determine the
present value of personal injury claims; and
other regulatory developments.
On 27 February 2017, the Lord Chancellor
announced a change in the Ogden discount
rate to -0.75%; we would expect this to be
reflected in the measurement of insurance
contract liabilities.
Management sets insurance contract
liabilities at a level that includes a margin
over the actuarial best estimate to take
account of uncertainty that may impact the
value of the liabilities ultimately settled.
As a result of the inherent uncertainty in
setting the insurance contract liabilities and
the susceptibility to management bias, we
consider the valuation of the insurance
contract liabilities to be a significant risk.
As a result of the timing of the Ogden
announcement, this risk has increased
compared to the prior year.
We understood, assessed and tested the design
and operational effectiveness of key controls over
the process applied by Management in establishing
insurance contract liabilities, including controls over
the completeness and accuracy of data used by
the internal actuary to project the claims liabilities,
and controls over changes in assumptions
and methodology.
Supported by our actuarial specialists, we:
• reconciled the claims data supporting the actuarial
projections to source systems and, on a sample
basis, verified the accurate recording of data
against the underlying policy and claims
documentation;
• obtained an understanding of the methodology and
key assumptions applied by Management;
• challenged the methodology and key assumptions
against our knowledge of the sector and the
Group’s own claims experience;
• performed independent actuarial projections on the
motor classes, which account for 95% of the net
insurance contract liabilities, to determine our own
best estimate for the projected liabilities and a
reasonable range within which such an estimate
may fall given the inherent uncertainty involved in
the estimation;
• assessed the level of reserve margin compared to
market practice and prior periods, in the context of
areas of uncertainty for which the margin is held;
• validated that the change in Ogden rate had been
appropriately reflected in the insurance contract
liabilities; and
• tested on a sample basis that the reinsurance
recoveries were recorded in line with the
underlying reinsurance contracts.
We reviewed the reinsurance agreement with
NewRe to understand the terms of the contract and
ensure the transaction is appropriately accounted
for in accordance with the contractual agreement.
Key observations
communicated to
the Audit Committee
In the prior period we
reported that the Saga
best estimate was based
on assumptions which
were individually
reasonable but contained
degrees of caution when
compared to our own
assumptions. Revisions to
assumptions by
management during the
current period have
resulted in the Saga best
estimate now being more
closely aligned to our own
best estimate projections.
However, we consider
that the overall insurance
contract liabilities
including the margin are
towards the more
conservative end of the
reasonable range.
We are satisfied that the
NewRe quota share
contract is appropriately
accounted for and
disclosed in the
consolidated financial
statements.
We consider that the
recorded insurance
contract liabilities as at 31
January 2017, including
the margin and net of
reinsurance, are within a
reasonable range.
96
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Risk
Our responses to the risks
Key observations
communicated to
the Audit Committee
Valuation of insurance contract
liabilities (£423.2m, 2016: £460.0m)
continued
Note 18(d) Insurance risk provides further
detail of these uncertainties and the process
for establishing insurance contract liabilities.
With effect from 1 February 2016, the Group
entered into a quota share arrangement with
New Reinsurance Company Limited (NewRe)
ceding 75% of the risk of motor policies on
a loss occurring basis.
Key accounting considerations relate to
whether the contract satisfies the
requirements of IFRS 4 to be accounted for
as an insurance contract, the presentation
and related disclosures in respect of the
contract in the financial statements, and
assumptions relating to the timing of
recognition of profit commission.
Valuation of goodwill (£1,485m,
2016: £1,485m)
Refer to the Audit Committee Report
(page 58), accounting policy 2.3(g) and
disclosure note 13.
The goodwill recorded as at 31 January
2017 is £1,485.0m and is tested for
impairment by Management by considering
the recoverable amount of the goodwill
as described in note 15.
In determining the recoverable amount,
judgement is applied by Management
in deriving:
• the forecast cash flows expected to arise
from the approved five year plan and the
underlying assumptions in setting the five
year plan;
• the pre-tax discount rates that reflect the
market assessment of the time value of
money and the risks specific to the cash
flow estimates; and
• the growth rate used to extrapolate cash
flow projections beyond the five year
plan period.
The level of risk has remained consistent
with the prior year.
This included considering whether the contract
included risk transfer to qualify as an insurance
contract under IFRS 4, and validating, through
re-performance, the application of the quota share
contract to the applicable business and ensuring
that the financial statements reflect the underlying
contract terms.
Management’s impairment assessment of the
recorded goodwill value was performed as at
30 November 2016. We tested the design and
operating effectiveness of the controls in operation
over the goodwill impairment assessment.
We have also evaluated and challenged this
assessment, specifically we:
• validated that the goodwill is appropriately
allocated to the operating segments;
• validated that the cash flows underpinning the
calculation were consistent with the five year
strategic plan approved by the Board;
• challenged the reasonableness of growth
forecasts during the five year plan period, having
regard to back testing performed by Management
to support the robustness of the forecast process;
• compared the long-term growth rates to
economic and industry forecasts;
• compared the discount rate to the Group’s pre-tax
weighted average cost of capital and to discount
rates used by similar UK companies that operate
in the financial services and travel industries; and
• assessed the adequacy of sensitivity analysis
performed by Management, stressing each of the
above assumptions in isolation and in combination
to best reflect what we considered to be reasonably
foreseeable changes in the key assumptions.
We have concluded that
the recoverable amount
of goodwill exceeds its
carrying amount, with
significant headroom
remaining when key
assumptions are stressed
for what we consider to
be cautious assumptions.
We consider that:
• the allocation of
goodwill to operating
segments is appropriate
and in line with the
requirements of IAS 36;
• the forecasts used are a
reasonable basis upon
which to perform the
impairment review; and
• the assumptions for
the pre-tax discount
rate and long-term
growth applied by
management are within
an acceptable range,
and are consistent with
economic and industry
forecasts, and those
used by comparator
insurance and travel
companies.
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GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Independent Auditor’s Report to the members of Saga plc continued
Key observations
communicated to
the Audit Committee
There have been no
material changes to
the revenue recognition
policies applied by
management during the
period, and the source
and contribution of
each revenue stream
is consistent with
the prior period.
We are satisfied that
the consolidation
adjustments to align the
revenue recognition
policies across the group
are appropriate.
We concluded that
revenue has been
recognised in the year
in compliance with
the Group’s revenue
recognition policies and
relevant accounting
standards.
Risk
Our responses to the risks
We considered the accounting policies for the
revenue streams in the Insurance and Travel
segments, having regard to the requirements of
applicable revenue recognition standards, being IAS
18 ‘Revenue’ and IFRS 4 ‘Insurance Contracts’.
We tested the design and operating effectiveness of
the controls in operation over the Insurance and
Travel revenue recognition and recording processes.
For the Insurance segment we:
• re-performed earnings calculations for insurance
contracts underwritten by the Group, to validate
that insurance revenues were being recognised
over the policy term;
• inspected a sample of contracts not underwritten
by the Group to validate whether any contractual
obligations to provide post-placement services
were in place;
• performed cut-off testing to confirm revenue had
been recorded in the correct period;
• reviewed the consolidation adjustments posted to
eliminate the revenue transactions between the
Group intermediary and Group underwriter;
• challenged and corroborated reasons for
variances from prior periods based on analytical
procedures performed; and
• tested a sample of manual journals for any
indication of inappropriate revenue recognition.
For the Travel segment we:
• performed detailed testing of a sample of
transactions to confirm that the tour operator
revenues and cruise holiday revenues were being
recognised in line with the contract terms and
applicable accounting policy;
• performed cut-off testing to confirm revenue had
been recorded in the correct period;
• challenged and corroborated reasons for
variances from prior periods based on analytical
procedures performed; and
• tested a sample of manual journals for any
indication of inappropriate revenue recognition.
Revenue recognition (£871.3m,
2016: £963.2m)
Refer to accounting policy 2.3(a) and
disclosure note 3.
ISAs (UK & Ireland) presume there may be
pressures or incentives on Management to
commit fraudulent financial reporting through
inappropriate revenue recognitions. There is
a risk of management override on revenue
recognition in response to performance
targets.
The diverse nature of the Group’s revenue
recognition policies and the materiality of
the balances concerned are such that we
consider revenue recognition to represent
a significant risk.
We have assessed the revenue streams in
the Insurance and Travel segments as being
most susceptible to manipulation through
the application of inappropriate revenue
recognition policies:
• The Insurance segment revenue consists
primarily of revenue earned by the
insurance intermediary and the insurance
underwriter. The intermediary revenue
from both external underwriters and the
Group underwriter is recognised upon
commencement of the policy period of
risk, whereas the Group underwriter
recognises revenue on an earned basis
over the term of the policy. For policies
underwritten by the Group underwriter
and placed via the Group intermediary,
consolidation adjustments are processed
to ensure that the overall revenue
recorded in respect of risks underwritten
by the Group is recognised in accordance
with the Group policy.
• In the Travel segment, revenue from tour
operations is recognised on the
passenger’s date of departure and for
cruise holidays, where the Group operates
the cruise ship, revenue is recognised on a
per diem basis over the duration of the
cruise. There is a risk that revenue
recognition is accelerated and recognised
when holidays are booked or cash in
respect of those bookings is received.
The level of risk has remained consistent
with the prior year.
98
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Overview of the scope of our audit
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We
take into account size, risk profile and changes in the business environment in assessing the level of work to be performed at
each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, we selected components covering entities within the United Kingdom
and Gibraltar, which represent the principal trading entities within the Group.
The table below illustrates the coverage obtained from the work we performed:
Jan-17
Revenue
Profit
before Tax
92%
4%
96%
4%
96%
1%
97%
3%
Total
Assets
98%
1%
99%
1%
100%
100%
100%
No.
10
1
11
7
18
Full scope1
Specific scope2
Full and Specific
scope coverage
Remaining
components3
Total reporting
components
Jan-16
No.
Revenue
Profit
before Tax
93%
3%
96%
4%
89%
5%
94%
6%
7
4
11
19
30
Total
Assets
96%
3%
99%
1%
100%
100%
100%
Notes:
1 We audited the complete financial information.
2 We audited specific accounts within these components.
3 We performed other procedures, including analytical review, testing of consolidation journals and intercompany eliminations to respond to any potential
risks of material misstatement to the Group financial statements.
Changes from the prior year
The changes in the number of full scope and specific scope entities primarily reflect revisions to the internal reporting and
consolidation structure within Saga.
Involvement with component teams
Other than the independent actuarial projections on the motor classes performed by our UK actuarial specialists, full scope audit
procedures related to the underwriting component were performed by EY Gibraltar operating under our instruction. We determined
the appropriate level of our involvement to enable us to be satisfied that sufficient audit evidence had been obtained as a basis
for our opinion on the Group as a whole. We reviewed the component team working papers and participated in their planning
and execution of the audit in respect of the risks identified above. Audit procedures relating to all remaining components were
performed directly by the primary audit team.
Our application of materiality
We apply the concept of materiality in planning and performing our audit, in evaluating the effect of identified misstatements
on our audit and in forming our opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent
of our audit procedures.
When establishing our overall audit strategy, we determined a magnitude of uncorrected misstatements that we judged would be
material for the financial statements as a whole. We determined materiality for the Group to be £9.7m (2016: £9.0m), which is
approximately 5% of the Group’s Profit before tax from continuing operations.
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GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Governance
Independent Auditor’s Report to the members of Saga plc continued
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment and reflecting the
fact that the Group is recently listed, our judgement is that overall performance materiality (i.e. our tolerance for misstatement in
an individual account or balance) for the Group should be 50% of materiality, namely £4.9m (2016: £4.5m).
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts
is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is
based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement
at that component. In the current year, the range of performance materiality allocated to components was £0.9m to £2.5m.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.49m
(2016: £0.45m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in
the light of other relevant qualitative considerations in forming our opinion.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s and parent company’s circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors;
and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in
the Annual report and accounts to identify material inconsistencies with the audited financial statements and to identify any
information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in
the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibility Statements set out on page 94, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit
and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006; and
• based on the work undertaken in the course of the audit:
– the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
– the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
100
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Matters on which we are required to report by exception
ISAs (UK and
Ireland)
We are required to report to you if, in our opinion, financial and non-financial information
in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge
of the Group acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to report whether we have identified any inconsistencies
between our knowledge acquired in the course of performing the audit and the directors’
statement that they consider the annual report and accounts taken as a whole is fair,
balanced and understandable and provides the information necessary for shareholders
to assess the entity’s performance, business model and strategy; and whether the annual
report appropriately addresses those matters that we communicated to the audit committee
that we consider should have been disclosed.
We have no
exceptions
to report.
Companies Act
2006 reporting
In light of the knowledge and understanding of the Company and its environment obtained
in the course of the audit, we have identified no material misstatements in the Strategic
Report or Directors’ Report.
We have no
exceptions
to report.
We are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns
adequate for our audit have not been received from branches not visited by us; or
• the parent company financial statements and the part of the Directors’ Remuneration
Report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We are required to review:
• the directors’ statement in relation to going concern and longer-term viability, set out
on page 42; and
• the part of the Corporate Governance Statement relating to the company’s compliance
with the provisions of the UK Corporate Governance Code specified for our review.
We have no
exceptions
to report.
Listing Rules
review
requirements
Statement on the Directors’ Assessment of the Principal Risks that Would Threaten the Solvency or Liquidity
of the Entity
ISAs (UK and
Ireland) reporting
We are required to give a statement as to whether we have anything material to add
or to draw attention to in relation to:
• the directors’ confirmation in the annual report that they have carried out a robust
assessment of the principal risks facing the entity, including those that would threaten
its business model, future performance, solvency or liquidity;
• the disclosures in the annual report that describe those risks and explain how they are
being managed or mitigated;
• the directors’ statement in the financial statements about whether they considered it
appropriate to adopt the going concern basis of accounting in preparing them, and their
identification of any material uncertainties to the entity’s ability to continue to do so over a
period of at least twelve months from the date of approval of the financial statements; and
• the directors’ explanation in the annual report as to how they have assessed the
prospects of the entity, over what period they have done so and why they consider
that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the entity will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
We have
nothing
material
to add or
to draw
attention to.
John Headley (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor, London, 28 March 2017
Notes:
1 The maintenance and integrity of the Saga plc web site is the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the web site.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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GovernanceFinancial statementsStrategic reportANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Financial statements
Financial statements
Consolidated income statement
Consolidated income statement
for the year ended 31 January 2017
for the year ended 31 January 2017
Revenue
Cost of sales
Gross profit
Administrative and selling expenses
Investment income
Finance costs
Finance income
Share of loss of joint ventures
Profit before tax from continuing operations
Tax expense
Profit for the year from continuing operations
Note
2017
£’m
2016
£’m
3
3
4
5
6
7
34
871.3
963.2
(422.7)
(544.2)
448.6
419.0
(251.6)
(227.3)
5.0
(18.6)
11.3
(1.4)
11.0
(25.2)
–
(1.3)
193.3
176.2
9
(36.0)
(28.1)
157.3
148.1
Loss after tax for the year from discontinued operations
31
–
(6.9)
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share:
Basic
Diluted
Earnings per share for continuing operations:
Basic
Diluted
The notes on pages 107-165 form an integral part of these consolidated financial statements.
157.3
141.2
157.3
–
157.3
140.9
0.3
141.2
11
11
11
11
14.1p
14.0p
12.7p
12.6p
14.1p
14.0p
13.3p
13.2p
100
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Financial statements
Financial statements
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
for the year ended 31 January 2017
for the year ended 31 January 2017
Profit for the year
Other comprehensive income
Other comprehensive income to be reclassified to income statement
in subsequent years
Exchange differences on translation of foreign operations
Net gain on cash flow hedges
Associated tax effect
Net gain/(loss) on available for sale financial assets
Associated tax effect
Other comprehensive income not to be reclassified to income statement
in subsequent years
Re-measurement gains on defined benefit plans
Associated tax effect
23
Total other comprehensive income
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
The notes on pages 107-165 form an integral part of these consolidated financial statements.
Note
2017
£’m
157.3
2016
£’m
141.2
0.7
(1.2)
32.0
(5.3)
1.0
(0.1)
28.3
4.6
(1.1)
3.5
31.8
189.1
16.6
(3.0)
(1.6)
0.4
11.2
26.6
(4.8)
21.8
33.0
174.2
189.1
–
189.1
173.9
0.3
174.2
101
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Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Financial statements
Financial statements
Consolidated statement of financial position
Consolidated statement of financial position
as at 31 January 2017
as at 31 January 2017
Note
2017
£’m
2016
£’m
13
14
34
16
17
9
24
20
21
23
24
17
9
25
22
27
1,485.0
53.8
1.4
131.5
600.3
16.3
97.5
5.6
198.7
108.7
2,698.8
13.7
642.3
4.0
489.8
14.9
21.5
134.9
182.5
1,503.6
11.2
519.3
607.8
15.6
–
3.3
38.0
1,195.2
2,698.8
1,485.0
52.3
1.6
140.6
644.7
22.1
106.4
4.9
188.0
106.5
2,752.1
18.8
703.3
4.0
580.5
15.0
17.4
133.3
191.6
1,663.9
11.2
519.3
527.0
17.7
(0.7)
2.4
11.3
1,088.2
2,752.1
Assets
Goodwill
Intangible fixed assets
Investment in joint ventures
Property, plant and equipment
Financial assets
Deferred tax assets
Reinsurance assets
Inventories
Trade and other receivables
Cash and short-term deposits
Total assets
Liabilities
Retirement benefit scheme obligations
Gross insurance contract liabilities
Provisions
Financial liabilities
Current tax liabilities
Deferred tax liabilities
Other liabilities
Trade and other payables
Total liabilities
Equity
Issued capital
Share premium
Retained earnings
Share-based payment reserve
Foreign currency translation reserve
Available for sale reserve
Hedging reserve
Total equity
Total liabilities and equity
The notes on pages 107-165 form an integral part of these consolidated financial statements.
Signed for and on behalf of the Board on 28 March 2017 by
L H L Batchelor
Group Chief Executive Officer
J S Hill
Group Chief Financial Officer
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104
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Financial statements
Financial statements
Consolidated statement of changes in equity
Consolidated statement of changes in equity
for the year ended 31 January 2017
for the year ended 31 January 2017
Attributable to the equity holders of the parent
Issued
capital
£’m
11.2
Share
premium
£’m
519.3
–
–
–
–
–
–
–
–
–
–
Retained
earnings
£’m
527.0
157.3
3.5
160.8
(86.1)
–
4.9
–
11.2
–
519.3
6.1
607.8
(7.0)
15.6
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
140.9
21.8
162.7
(0.1)
–
–
(70.4)
–
–
–
–
–
–
–
–
–
2.8
11.1
(12.9)
12.9
(12.9)
At 1 February 2016
Profit for the year
Other comprehensive
income
Total comprehensive
income
Dividends paid (note 10)
Share-based payment
charge (note 29)
Exercise of share options
At 31 January 2017
Profit for the year
Other comprehensive
income
Total comprehensive
income
Bonus shares issued
Dividends paid (note 10)
Share-based payment
charge (note 29)
Exercise of share options
Issue of free shares
(note 27)
At 31 January 2016
At 1 February 2015
11.1
519.4
410.7
40.7
Share-
based
payment
reserve
£’m
17.7
Foreign
currency
translation
reserve
£’m
(0.7)
Available
for sale
reserve
£’m
2.4
Hedging
reserve
Total
£’m
£’m
11.3 1,088.2
Non-
controlling
interests
£’m
Total
equity
£’m
– 1,088.2
–
0.7
0.7
–
–
–
–
0.5
–
–
–
157.3
0.9
26.7
31.8
0.9
26.7
189.1
–
–
(86.1)
4.9
–
–
–
–
–
157.3
31.8
189.1
(86.1)
4.9
–
(0.9)
38.0 1,195.2
(0.9)
–
– 1,195.2
(2.3)
983.7
–
140.9
0.4
0.3
984.1
141.2
–
–
–
3.3
3.6
–
(1.2)
(1.2)
13.6
33.0
–
33.0
(1.2)
(1.2)
13.6
173.9
0.3
174.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(70.4)
2.8
(1.8)
–
–
(0.7)
–
(71.1)
–
–
–
2.8
(1.8)
–
11.2
519.3
527.0
17.7
(0.7)
2.4
11.3 1,088.2
– 1,088.2
The notes on pages 107-165 form an integral part of these consolidated financial statements.
103
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Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Financial statements
Financial statements
Consolidated statement of cash flows
Consolidated statement of cash flows
for the year ended 31 January 2017
for the year ended 31 January 2017
Profit before tax from continuing operations
Loss before tax from discontinued operations
Profit before tax
Depreciation, impairment and loss on disposal of property, plant and equipment
Amortisation and impairment of intangible assets
Share-based payment transactions
Transactions relating to disposal group held for sale
Finance costs
Finance income
Share of loss of joint ventures
Interest income from investments
Movements in other assets and liabilities
Interest received
Interest paid
Income tax paid
Net cash flows from operating activities
Investing activities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment and intangible assets
Net disposal of financial assets
Acquisition of subsidiaries
Disposal of subsidiaries
Investment in joint venture
Net cash flows used in investing activities
Financing activities
Payment of finance lease liabilities
Net payment of borrowings
Dividends paid
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash equivalents
Net foreign exchange differences
Cash and cash equivalents at the start of the year
Cash and cash equivalents at the end of the year
The notes on pages 107-165 form an integral part of these consolidated financial statements.
Note
12
26
21
2017
£’m
193.3
–
193.3
21.6
18.1
4.0
–
18.6
(11.3)
1.4
(5.0)
(58.8)
181.9
5.0
(15.8)
(32.6)
138.5
0.2
(43.9)
124.7
–
–
(1.3)
79.7
(0.5)
(75.0)
(86.3)
(161.8)
56.4
0.7
164.4
221.5
2016
£’m
176.2
(7.2)
169.0
23.4
14.1
1.1
7.3
25.2
–
1.3
(11.0)
(56.5)
173.9
13.5
(21.6)
(15.4)
150.4
–
(33.8)
64.3
(26.7)
(8.2)
(3.0)
(7.4)
(0.5)
(145.0)
(70.0)
(215.5)
(72.5)
(1.0)
237.9
164.4
104
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Financial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Financial statements
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
1 Corporate information
Saga plc (the ‘Company’) is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act
2006 (registration number 8804263) The Company is registered in England and its registered office is located at Enbrook Park,
Folkestone, Kent, CT20 3SE.
The consolidated financial statements of Saga plc and the entities controlled by the Company (its subsidiaries, collectively
‘Saga Group’ or the ‘Group’) for the year ended 31 January 2017 were approved for issue by the Board of Directors on
28 March 2017.
Saga Group offers a wide range of products and services to its customer base which include general insurance products,
package and cruise holidays, personal finance products, domiciliary care services, and a monthly subscription magazine.
Accordingly, the Group segments its business into three trading segments – insurance, travel and emerging businesses
and central costs (see note 3).
2.1 Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting
Standards (‘IFRSs’) as issued by the International Accounting Standards Board (‘IASB’) and adopted by the European Union,
and with the Companies Act 2006.
The consolidated financial statements have been prepared on a going concern basis and on a historical cost basis except as
otherwise stated.
The Group’s consolidated financial statements are presented in pounds sterling which is also the parent company’s functional
currency, and all values are rounded to the nearest hundred thousand (£’m), except when otherwise indicated. Each company in
the Group determines its own functional currency and items included in the financial statements of each entity are measured using
that functional currency.
IFRSs require the Directors to adopt accounting policies that are the most appropriate to the Group’s circumstances. In determining
and applying accounting policies, Directors and management are required to make judgements in respect of items where the choice
of specific policy, accounting estimate or assumption to be followed could materially affect the Group’s reported financial position,
results or cash flows; it may later be determined that a different choice may have been more appropriate.
The preparation of financial statements in conformity with IFRSs requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. A discussion on the Group’s significant
accounting judgements and key sources of estimation uncertainty is detailed in note 2.5. Actual results could differ from those
estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and
future periods if the revision affects both current and future periods.
The principal accounting policies adopted, which have been applied consistently, unless otherwise stated, are set out in
note 2.3 below.
2.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 January each year. Control is achieved when the Group is exposed, or has rights, to variable returns
from its involvement with an investee entity and has the ability to affect those returns through its power over the investee entity. The
existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether
the Group controls another entity.
105
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Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
2.2 Basis of consolidation (continued)
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group
has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:
• the contractual arrangement with the other vote holders of the investee;
• rights arising from other contractual arrangements; and
• the Group’s voting rights and potential voting rights.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and
ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated financial statements from the date the Group gains control until the date the
Group ceases to control the subsidiary.
On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are identified and measured at their fair values at the
date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised
as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on
acquisition) is credited to the income statement in the period of acquisition. The interest of non-controlling shareholders is stated at
the non-controlling interest’s proportion of the fair values of the assets and liabilities recognised. Profit or loss and each component
of other comprehensive income are attributed to the equity holders of the parent of the Group and to non-controlling interests, even
if this results in non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and
cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from
the effective date of acquisition or up to the effective date of disposal, as appropriate. Where a subsidiary which constituted
a major line of business is disposed of or otherwise meets the requirements of IFRS 5 to be held for sale, it is disclosed as
a discontinued operation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest
and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised
at fair value.
2.3 Summary of significant accounting policies
a. Revenue recognition
Revenue represents amounts receivable from the sale or supply of goods and services provided to customers in the ordinary course
of business, and is recognised to the extent that it is probable that the future economic benefits will flow to the Group and the
revenue can be reliably measured, regardless of when payment is received. The recognition policies for the Group’s various revenue
streams by segment are as follows:
i) Insurance
Revenue is recognised in the income statement over the period matching the Group’s obligation to provide services. Where the
Group has no remaining contractual obligations, revenue is recognised immediately.
Insurance premiums received for risks underwritten by the Group are recognised on a straight-line time-apportioned basis over the
period of the policy. Any changes to premium arising as a result of adjustments to the underlying risk notified by the policyholders
are recognised over the remaining period of the policy from the effective date of notification.
Revenue received in connection with insurance policies not underwritten by the Group is recognised at the commencement of the
period of risk.
Insurance premiums received for risks which are not underwritten by the Group are not recognised in the income statement,
as these amounts are passed through directly to the relevant insurer.
106
108
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
2.3 Summary of significant accounting policies (continued)
a. Revenue recognition (continued)
i) Insurance (continued)
Insurance premiums and sales revenues received in advance of the inception date of a policy are treated as advanced receipts
and included as other liabilities in the statement of financial position.
Premiums and sales revenue in respect of insurance policies underwritten by the Group which are live at the reporting date and
which relate to the period after the reporting date are treated as unearned and included in insurance contract liabilities in the
statement of financial position.
Income from credit provided to customers to facilitate payment of their insurance costs over the life of their policy is treated as
part of the revenue from insurance operations and recognised over the period of the policy in proportion to the outstanding
premium balance.
Profit commissions due under coinsurance or reinsurance arrangements are recognised and valued in accordance with the
contractual terms to which they are subject to and on the same basis, where appropriate, as the related reinsured liabilities.
ii) Travel
Revenue from tour operations and cruise holidays where the Group does not operate the cruise ship is recognised in full on the
passenger’s date of departure which represents the date upon which the revenue becomes fully non-refundable. Revenue in respect of
cruise holidays where the Group operates the cruise ship is recognised on a per diem basis over the duration of the cruise reflecting the
often longer durations of cruise holidays, and to facilitate more accurate matching of revenue with costs as they arise.
Revenue from sales in resort, for example for optional excursions, or on board a cruise ship operated by the Group, for example
bar sales or optional excursions, is recognised as and when earned.
Revenue from tour operations received in advance of the date of departure, and the unearned element of cruise revenues not yet
recognised on a per diem basis, are included as other liabilities in the statement of financial position.
iii) Emerging Businesses and Central Costs
Personal finance
Revenue from personal finance products is recognised when the customer contracts with the provider of the relevant personal
finance product where the revenue comprises a one-off payment by the provider of the product.
Where the personal finance product is one that delivers a recurring income stream, for example ongoing investment, savings
or lending products, revenues are recognised over the life of the product.
Healthcare
Revenue from healthcare operations is recognised when services are provided to customers. The point of supply is generally
defined as the point at which a service user has received care services from the Group and which are usually provided on an
hourly basis.
For the discontinued healthcare business, revenue for social care operations was recognised as a service user received care
services, usually on a daily basis. For primary care operations, revenue was recognised on delivery of the contracted services,
or on a time-elapsed basis for capacity-related contracts as the principal contractual obligation was to provide an agreed level
of capacity over a fixed term. On longer-term contracts, revenue was recognised over the life of each contract in line with the
pattern of delivery of the associated services.
Magazine subscriptions
Magazine subscription revenue is recognised on a straight-line basis over the period of the subscription. Revenue generated from
advertising within the magazine is recognised when the magazine is provided to the customer. The element of subscriptions and
advertising revenue relating to the period after the reporting date is treated as unearned and included within other liabilities in the
statement of financial position.
Sale of goods
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed
to the buyer, usually on delivery of the goods.
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Financial statements
Notes to the consolidated financial statements continued
2.3 Summary of significant accounting policies (continued)
b. Cost recognition
i) Direct costs
Costs directly associated with the revenues generated by the Group’s principal activities (excluding insurance underwriting) are
recognised in the income statement on a basis consistent with the relevant revenue recognition policy.
ii) Acquisition costs
Acquisition costs arising from the selling or renewing of insurance policies underwritten by the Group are recognised on a straight-
line time-apportioned basis over the period of the policy in which the related revenues are earned. The proportion of acquisition
costs relating to premiums treated as unearned at the reporting date are deferred and included as other assets in the statement
of financial position.
iii) Claims costs
Claims costs incurred in respect of insurance policies underwritten by the Group include claims made for losses reported as
occurring during the period together with the related handling costs, any adjustments to claims outstanding from previous periods,
and a provision for the estimated cost of claims incurred during the period but not reported at the reporting date. Further detail is
provided in note 24.
iv) Reinsurance costs
The Group undertakes a programme of reinsurance in respect of the policies which it underwrites. Outward reinsurance premiums
are accounted for in the same accounting period as the related inward insurance premiums and are included as a deduction from
earned premium, and therefore as a reduction in revenue.
v) Finance costs
Finance costs comprise interest paid and payable which is calculated using the effective interest rate method and recognised in the
income statement as it accrues. Accrued interest is included within the carrying value of the interest bearing financial liability in the
statement of financial position.
vi) Other expenses
Other expenses are taken to the income statement as incurred and exclude intra-group transactions.
c. Recognition of other income statement items
i) Investment income
Investment income in the form of interest is recognised in the income statement as it accrues and is calculated using the effective
interest rate method. Fees and commissions which are an integral part of the effective yield of the financial asset or liability are
recognised as an adjustment to the effective interest rate of the instrument.
Investment income in the form of dividends is recognised when the right to receive payment is established. For listed securities,
this is the date the security is listed as ex-dividend.
ii) Gains and losses on financial investments
Realised and unrealised gains and losses on financial investments are recorded as finance income or finance costs in the income
statement. Realised gains and losses on the sale of investments are calculated as the difference between net sales proceeds
and the original or amortised cost and are recorded on the date of sale. Unrealised gains and losses, arising on financial assets
measured at fair value through profit and loss which have not been derecognised as a result of disposal or transfer, represent the
difference between the carrying value at the year end and the carrying value at the previous year end or the purchase value for
investments acquired during the year, net of the reversal of previously recognised unrealised gains and losses in respect of
disposals made during the year.
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2.3 Summary of significant accounting policies (continued)
d. Taxes
i) Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid
to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively
enacted at the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not
in the income statement.
ii) Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that
it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused
tax credits and unused tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that
future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised
or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting
date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other
comprehensive income, in which case the deferred tax is dealt with in other comprehensive income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
e. Foreign currencies
i) Transactions and balances
Transactions in foreign currencies are initially recorded by the Group at their respective functional currency spot rate at the date
the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are retranslated
at the functional currency spot rate of exchange ruling at the reporting date. Differences arising on settlement or translation
of monetary items are recognised in the income statement.
Non-monetary items that are measured at historical cost are translated using the exchange rate at the date of the initial transaction.
Non-monetary items measured at fair value are translated using the exchange rate at the date when the fair value is determined.
The gains or losses arising on translation of non-monetary items measured at fair value are treated in line with the recognition of
gains or losses arising on a change in the fair value of the item (i.e. the translation differences on items whose fair value gain or loss
is recognised in other comprehensive income or the income statement are also recognised in other comprehensive income or the
income statement respectively).
ii) Group companies
The assets and liabilities of foreign operations are translated into pounds sterling at the rate of exchange prevailing at the reporting
date and their income statements are translated at exchange rates prevailing at the dates of the transactions. The exchange
differences arising on translation are recognised in other comprehensive income. On disposal of a foreign operation, the component
of other comprehensive income relating to that particular foreign operation is recycled to the income statement.
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Notes to the consolidated financial statements continued
2.3 Summary of significant accounting policies (continued)
f. Intangible assets
Intangible assets acquired are measured on initial recognition at cost. Intangible assets acquired in a business combination are
measured at their fair value at the date of acquisition and, following initial recognition are carried at cost less any accumulated
amortisation and accumulated impairment losses. Internally generated intangibles, excluding internally developed software, are
not capitalised and the related expenditure is reflected in the income statement in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite. Estimated useful lives are as follows:
Goodwill
Brands
Customer relationships
Contracts acquired
Software
Indefinite
10 years
over the life of the customer relationship
over the life of the contract
3-10 years
Intangible assets with finite lives are amortised over their useful economic life on a basis appropriate to the consumption of the asset
and are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period
and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period.
Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are
considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The
amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category that is
consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the
cash generating unit (‘CGU’) level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life
continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds
and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
g. Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate
of the consideration transferred measured at acquisition date at fair value and the amount of any non-controlling interests in the
acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree’s identifiable net assets.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent
consideration classified as an asset or liability that is a financial instrument within the scope of IAS 39 ‘Financial Instruments:
Recognition and Measurement’ is measured at fair value with the changes in fair value recognised in the income statement.
Any excess of the cost of acquisition over the fair values of the identifiable assets and liabilities is recognised as goodwill. If the cost
of acquisition is less than the fair values of the identifiable assets and liabilities of the acquired business, the difference is treated as
negative goodwill and is recognised directly in the income statement in the year of acquisition.
Acquisition-related costs are expensed as incurred and included in administrative expenses.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to CGUs at the
point of acquisition and is reviewed annually for impairment.
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2.3 Summary of significant accounting policies (continued)
h. Impairment of non-financial assets
The Group undertakes a full impairment review of the carrying value of goodwill at each reporting date. The Group also assesses at
each reporting date whether there is any indication that any other non-financial assets may be impaired. If such an indication exists,
the recoverable amount is estimated and compared to the carrying amount. If the recoverable amount is less than the carrying
amount, the asset is considered impaired and is written down to its recoverable amount and the impairment loss is recognised
immediately in the income statement.
In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less
costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate
valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded
companies or other available fair value indicators. The Group bases its impairment calculations on detailed budgets, plans and long-
term growth assumptions, which are prepared separately for each of the Group’s CGUs to which individual assets are allocated.
i. Joint arrangements
The Group participates in joint arrangements where control of the arrangement is shared with another party. A joint arrangement
is classified as a joint operation or joint venture, depending on management’s assessment of the legal form and substance of
the arrangement.
The Group’s share of assets, liabilities, revenue, expenses and cash flows of joint operations are included in the consolidated
financial statements on a line-by-line basis, whereas the Group’s investment and share of results of joint ventures are shown
within single line items in the consolidated statement of financial position and the consolidated income statement respectively.
j. Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Where an item
of property, plant and equipment comprises major components having different useful lives, they are accounted for separately.
Likewise, when a major inspection or dry-docking of a cruise ship is performed, its cost is recognised in the carrying amount
of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repairs and maintenance costs are
recognised in the income statement as incurred.
Assets in the course of construction at the balance sheet date are classified separately. These assets are transferred to other
asset categories when they become available for their intended use.
Depreciation is charged to the income statement on a straight-line basis so as to write off the depreciable amount of property,
plant and equipment over their estimated useful lives. The depreciable amount is the cost of an asset less its residual value.
Land and assets in the course of construction are not depreciated. Estimated useful lives are as follows:
Buildings, properties and related fixtures:
Buildings
Related fittings
Leasehold properties
Cruise ships
Computers
Plant, vehicles and other equipment
50 years
3-20 years
over the period of the lease
2-15 years
3 years
3-10 years
Costs relating to cruise ship mandatory dry-dockings are capitalised and depreciated over the period up to the next dry-docking
where appropriate.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of an asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised.
Estimated residual values and useful lives are reviewed annually.
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Notes to the consolidated financial statements continued
2.3 Summary of significant accounting policies (continued)
k. Non-current assets held for sale and discontinued operations
The Group classifies non-current assets as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use. To be classified as held for sale, an asset must be available for immediate sale
in its present condition subject only to terms that are usual and customary for the sale of such assets, and the sale must be highly
probable. Sale is considered to be highly probable when management is committed to a plan to sell an asset and an active
programme to locate a buyer and complete the plan has been initiated at a price that is reasonable in relation to its current fair
value, and there is an expectation that the sale will be completed within one year from the date of classification. Non-current assets
classified as held for sale are carried on the Group’s statement of financial position at the lower of their carrying amount and fair
value less costs to sell.
Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount of profit
or loss after tax from discontinued operations in the income statement.
l. Financial instruments
i) Financial assets
Initial recognition and measurement
Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments
or available for sale financial assets. The Group determines the classification of its financial assets at initial recognition and they are
accounted on a trade date basis. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded
at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as described below:
Financial assets at fair value through profit or loss (‘FVTPL’)
Financial assets at FVTPL are assets:
• which upon initial recognition are designated at fair value through the income statement to eliminate or significantly reduce
a measurement recognition inconsistency, or
• which are acquired principally for the purpose of selling in the near term or forming part of the portfolio of financial instruments
that are managed together and for which there is evidence of short-term profit taking.
Derivative financial instruments not designated as hedging instruments and hedge funds are classified as FVTPL. Financial assets at
FVTPL are stated at fair value, with any resultant gain or loss recognised through the income statement. The fair values are quoted
market prices (where there is an active market) or are based on valuation techniques (where there is no active market or the
securities are unlisted). Valuation techniques include the use of recent arm’s length transactions, discounted cash flow analysis
and other commonly used valuation techniques.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest
rate (‘EIR’) method, less impairment losses. Amortised cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the income
statement. The losses arising from impairment are recognised in the income statement in finance costs.
Available for sale financial investments
Available for sale financial investments include debt securities and money market funds. After initial measurement, available for sale
financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive
income in the available for sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised
in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the income statement
in finance costs and removed from the available for sale reserve. Interest income on available for sale debt securities is calculated
using the EIR and is recognised in the income statement.
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2.3 Summary of significant accounting policies (continued)
l. Financial instruments (continued)
Derecognition
A financial asset is derecognised when the rights to receive cash flows from the asset have expired or when the Group has
transferred substantially all the risks and rewards relating to the asset to a third party.
Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of
impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred ‘loss event’)
and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can
be reliably estimated. Evidence of impairment may include indications that debtors are experiencing significant financial difficulty, or
where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears
or other factors that correlate with defaults.
Loans and receivables
If there is objective evidence that an impairment loss on a financial asset or group of financial assets classified as loans and
receivables has been incurred, the Group measures the amount of the loss as the difference between the carrying amount of
the asset or group of assets and the present value of estimated future cash flows from the asset or group of assets, discounted
at the effective interest rate of the instrument at initial recognition.
Impairment losses are assessed individually where significant, or collectively for assets that are not individually significant.
Impairment losses are recognised in the income statement and the carrying amount of the financial asset or group of financial
assets is reduced by establishing an allowance for the impairment losses. If in a subsequent period the amount of the impairment
loss reduces and the reduction can be ascribed to an event after the impairment was recognised, the previously recognised loss
is reversed by adjusting the allowance.
Available for sale financial investments
When a decline in the fair value of a financial asset classified as available for sale has been recognised directly in equity and there is
objective evidence that the asset is impaired, the cumulative loss is removed from equity and recognised in the income statement.
The loss is measured as the difference between the amortised cost of the financial asset and its current fair value. Impairment losses
on available for sale equity instruments are not reversed through the income statement, but those on available for sale debt
instruments are reversed if there is an increase in fair value that is objectively related to a subsequent event. Subsequent increases
in the fair value of available for sale debt instruments are all recognised in equity.
ii) Financial liabilities
Initial recognition and measurement
Financial liabilities are classified as financial liabilities at FVTPL, loans and borrowings, payables or as derivatives designated as
hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at
initial recognition.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable
transaction costs.
The Group’s financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments.
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Notes to the consolidated financial statements continued
2.3 Summary of significant accounting policies (continued)
l. Financial instruments (continued)
ii) Financial liabilities (continued)
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
Financial liabilities at FVTPL
Derivative financial instruments not designated as hedging instruments are classified as FVTPL. Financial liabilities at FVTPL are
stated at fair value, with any resultant gain or loss recognised through the income statement.
Loans and borrowings and other payables
After initial recognition, interest bearing loans and borrowings and other payables are subsequently measured at amortised cost
using the EIR method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as
through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included in finance costs in the income statement.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and
the recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement.
iii) Derivatives
Derivatives are measured at fair value both initially and subsequent to initial recognition. All changes in fair value are recognised in
the income statement. Derivatives are presented as assets when the fair values are positive and as liabilities when the fair values are
negative. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more
than 12 months and it is not expected to be realised or settled within 12 months.
iv) Fair values
The Group measures financial instruments, such as derivatives and financial instruments classified as available for sale and at
FVTPL, at fair value at each reporting date.
Fair value is the price that would be required to sell an asset or to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset
or transfer the liability takes place either in the principal market accessible by the Group for the asset or liability or in the absence of
a principal market, in the most advantageous market accessible by the Group for the asset or liability.
The fair values are quoted market prices where there is an active market or are based on valuation techniques when there is no
active market or the instruments are unlisted. Valuation techniques include the use of recent arm’s length market transactions,
discounted cash flow analysis and other commonly used valuation techniques. An analysis of the fair values of financial instruments
and further details as to how they are measured are provided below.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy based on the lowest level input that is significant to the fair value measurement as a whole.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers
have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
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2.3 Summary of significant accounting policies (continued)
l. Financial instruments (continued)
v) Hedge accounting
The Group designates certain derivative financial instruments as cash flow hedges of certain forecast transactions. These
transactions are highly probable to occur and present an exposure to variations in cash flows that could ultimately affect amounts
determined in profit or loss.
Where a derivative financial instrument is designated as a hedge, the effective part of any fair value gain or loss on the derivative
financial instrument is recognised directly in the hedging reserve. Any ineffective portion of the fair value gain or loss is recognised
immediately within the income statement.
When a hedged forecast transaction subsequently results in the recognition of a financial asset or a financial liability, any associated
cumulative gain or loss is removed from the hedging reserve and reclassified into the income statement in the same period in which
the asset or liability affects profit or loss. When a hedged forecast transaction subsequently results in the recognition of a non-
financial asset or non-financial liability, any associated cumulative gain or loss is removed from the hedging reserve and is included
in the initial cost or other carrying amount of the non-financial asset or liability.
For foreign currency hedges, prospective hedge effectiveness testing is performed at the inception of the hedging relationship, and
subsequently at each balance sheet date, through comparison of the projected fair values of the hedged forecast transaction and
the hedging instrument using a combination of the hypothetical derivative approach and sensitivity analysis, as part of the dollar-
offset method. Retrospective hedge testing is also performed at each reporting date using the dollar-offset method, by comparing
the cumulative changes in the fair values of the forecast hedged transaction and the hedging instrument.
For fuel oil hedges, prospective hedge effectiveness testing is performed at the inception of the hedging relationship, and
subsequently at each balance sheet date, using regression analysis. This method involves calculating the strength of the correlation
between the price of the derivative and the price of the fuel oil being purchased. Retrospective hedge testing is also performed at
each reporting date using the same technique.
When a hedging instrument no longer meets the criteria for hedge accounting, through maturity, sale, other termination, or
the revoking of the designated hedging relationship, hedge accounting is discontinued prospectively. If the hedged forecast
transaction is still expected to occur, the associated cumulative gain or loss remains in the hedging reserve and is recognised
in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to occur,
the cumulative unrealised gain or loss is recognised in the income statement immediately.
m. Leases
Leases under which substantially all of the risk and rewards of ownership are transferred to the Group are finance leases. All other
leases are operating leases.
Assets held under finance leases are recognised at the lower of the fair value of the asset and the present value of the minimum
lease payments within property, plant and equipment on the statement of financial position and depreciated over the shorter of the
lease term or their expected useful lives. The interest element of finance lease payments represents a constant proportion of the
capital balance outstanding and is charged to the income statement over the period of the lease.
Operating lease rentals are charged to the income statement on a straight-line basis over the lease term.
Income arising from operating leases where the Group acts as lessor is recognised on a straight-line basis over the lease term
and included in operating income due to its operating nature.
n. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective asset. All other borrowing
costs are expensed in the period in which they occur.
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
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Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
2.3 Summary of significant accounting policies (continued)
o. Cash and short-term deposits
Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term deposits
with a maturity of three months or less from their inception date.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash, short-term deposits as
defined above and short-term highly liquid investments (including money market funds) with original maturities of three months
or less which are subject to insignificant risk of change in value, net of outstanding bank overdrafts.
p. Inventories
Inventories are stated at the lower of cost and net realisable value. Costs include all costs incurred in bringing each product to
its present location and condition. Net realisable value is based on estimated selling price less any further costs expected to be
incurred to completion and disposal.
q. Insurance contract liabilities
Insurance contract liabilities include an outstanding claims provision, a provision for unearned premiums and, if required, a provision
for premium deficiency.
Outstanding claims provision
The provision for outstanding claims is set on an individual claim basis and is based on the ultimate cost of all claims notified but not
settled less amounts already paid by the reporting date, together with a provision for related claims handling costs. The provision
also includes the estimated cost of claims incurred but not reported at the statement of financial position date, which is set using
statistical methods. The outstanding claims provision is not discounted for the time value of money with the exception of claims
settled on a periodical payment orders (‘PPOs’) basis.
The amount of any anticipated reinsurance, salvage or subrogation recoveries is separately identified and reported within trade and
other receivables and insurance contract liabilities respectively.
Differences between the provisions at the reporting date and settlements and provisions in the following year (known as ‘run off
deviations’) are recognised in the income statement as they arise.
Provision for unearned premiums
The provision for unearned premiums represents that portion of premiums received or receivable that relates to risks that have not
yet expired at the reporting date. The provision is recognised when contracts are entered into and premiums are charged, and is
brought to account as premium income over the term of the contract in accordance with the pattern of insurance service provided
under the contract.
Provision for premium deficiency
At each reporting date, the Group reviews its unexpired risks and a liability adequacy test is performed to determine whether there
is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current
estimates of future contractual cash flows after taking account of the investment return expected to arise on assets relating to the
relevant insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums (less related
deferred acquisition costs) is inadequate, the deficiency is recognised in the income statement by setting up a provision for
premium deficiency.
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2.3 Summary of significant accounting policies (continued)
r. Reinsurance assets
Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on insurance contracts
issued are classified as reinsurance contracts. A contract is only accounted for as a reinsurance contract where there is significant
insurance risk transfer between the insurer and reinsurer.
Reinsurance assets include balances due from reinsurance companies for ceded insurance liabilities. Amounts recoverable
from reinsurers are estimated in a consistent manner with the outstanding claims provisions in accordance with the relevant
reinsurance contract.
The Group assesses its reinsurance assets for impairment at each balance sheet date. For assets that are directly exposed to long-
tail PPO liabilities a general provision for impairment is provided, calculated on a wholesale basis by reference to published credit
rating default curves. For all other reinsurance assets, the carrying value is written down to its recoverable amount only if there is
objective evidence of impairment.
The amount of any anticipated reinsurance recoveries is treated as a reduction in claims costs. Where this amount is material, it
is reported separately in the statement of financial position, except where the contractual terms of the reinsurance arrangement
necessitates the set-off of its associated financial assets and liabilities.
IFRS 4 prohibits the offsetting of reinsurance assets against the related insurance liabilities, unless the appropriate legal
requirements are met. Financial assets and liabilities arising under quota share agreements must be offset and the net amount
reported in the statement of financial position when there is a legally enforceable right to set-off the associated amounts and there
is an intention to settle on a net basis, or realise both the asset and settle the liability simultaneously. The contractual terms of the
new funds-withheld quota share agreement in motor insurance requires such a set-off of associated amounts.
s. Share-based payments
The Group provides benefits to employees (including Directors) in the form of share-based payment transactions, whereby
employees render services as consideration for equity instruments (‘equity-settled transactions’). The cost of equity-settled
transactions is measured by reference to the fair value on the grant date and is recognised as an expense over the relevant
vesting period, ending on the date on which the employee becomes fully entitled to the award.
Fair values of share-based payment transactions are calculated using Black-Scholes and Monte-Carlo modelling techniques.
In valuing equity-settled transactions, assessment is made of any vesting conditions to categorise these into market performance
conditions, non-market performance conditions and service conditions.
Where the equity-settled transactions have market performance conditions (that is, performance which is directly or indirectly linked
to the share price), the fair value of the award is assessed at the time of grant and is not changed, regardless of the actual level of
vesting achieved, except where the employee ceases to be employed prior to the vesting date.
For service conditions and non-market performance conditions, the fair value of the award is assessed at the time of grant and is
reassessed at each reporting date to reflect updated expectations for the level of vesting. No expense is recognised for awards that
ultimately do not vest.
At each reporting date prior to vesting, the cumulative expense is calculated, representing the extent to which the vesting period
has expired and, in the case of non-market conditions, the best estimate of the number of equity instruments that will ultimately vest
or, in the case of instruments subject to market conditions, the fair value on grant adjusted only for leavers. The movement in the
cumulative expense since the previous reporting date is recognised in the income statement, with the corresponding increase in
share-based payments reserve.
Upon vesting of an equity instrument, the cumulative cost in the share-based payments reserve is reclassified to retained earnings
in equity.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
2.3 Summary of significant accounting policies (continued)
t. Retirement benefit schemes
During the year, the Group operated a number of defined benefit pension plans which require contributions to be made to
separately administered funds. The cost of providing benefits under the defined benefit plans are determined separately using
the projected unit credit valuation method.
Actuarial gains and losses arising in the year are credited/charged to other comprehensive income and comprise the effects of
changes in actuarial assumptions and experience adjustments due to differences between the previous actuarial assumptions
and what has actually occurred. In particular, the difference between the interest income and the actual return on plan assets
is recognised in other comprehensive income.
Other movements in the net surplus or deficit, which include the current service cost, any past service cost and the effect of any
curtailment or settlements, are recognised in the income statement. Past service costs are recognised in the income statement on
the earlier of the date of plan curtailment and the date that the Group recognises restructuring-related costs. The interest cost less
interest income on assets held in the plans is also charged to the income statement.
The defined benefit schemes are funded, with assets of the schemes held separately from those of the Group, in separate trustee
administered funds. Scheme assets are measured using market values and scheme liabilities are measured using the projected unit
actuarial method and are discounted at the current rate of return on a high-quality corporate bond of equivalent term and currency
to the liability. Full actuarial valuations are obtained at least triennially and are updated at each reporting date. The resulting defined
benefit asset or liability is presented separately after other net assets and liabilities on the face of the statement of financial position.
The value of a pension benefit asset is restricted to the amount that may be recovered either through reduced contributions or
agreed refunds from the scheme.
For defined contribution schemes, the amounts charged to the income statement are the contributions payable in the year.
u. Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed,
the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating
to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material,
provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
A provision is recognised for onerous contracts in which the unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received under it. The unavoidable costs reflect the least net cost of exiting the
contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.
v. Equity
The Group has ordinary shares that are classified as equity. Incremental external costs that are directly attributable to the issue
of these shares are recognised in equity, net of tax.
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2.4 Standards issued but not yet effective
The following is a list of standards and amendments to standards that are in issue but are not effective or adopted as at 31 January
2017. Comment on these new standards or amendments is as follows:
a. IFRS 9 ‘Financial Instruments’
In July 2014, the IASB issued IFRS 9 ‘Financial Instruments’ that will essentially replace IAS 39. The classification and measurement
of financial assets and liabilities will be directly linked to the nature of the instrument’s contractual cash flows and the business
model employed by the holder of the instrument. The Group has begun work to determine the full impact of this standard on the
Group’s financial statements. Our initial assessment is that the standard is likely to enable a greater proportion of derivatives to
qualify for hedge accounting, and so reduce the volatility of derivative gains and losses in the Group’s income statement. Besides
from this, the Group believes that the standard is unlikely to have a significant effect on the recognition, measurement and
presentation of its other financial instruments. The standard is effective for annual periods beginning on or after 1 January 2018,
and was endorsed by the EU on 22 November 2016.
b. IFRS 15 ‘Revenue from Contracts with Customers’
The objective of IFRS 15 is to establish the principles that an entity should apply to report useful information to users of financial
statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.
The Group has begun work to determine the full impact of this standard on the Group’s financial statements.
Our initial assessment is that the standard will be unlikely to have a material impact on the Group’s financial statements. For
insurance brokerage, the majority of the Group’s performance obligations are discharged when arranging cover for its customers,
which is on or just before the cover start date of the policy and is when the Group currently recognises the associated revenue.
Revenue from insurance underwriting is out of scope and so is unaffected by this standard. For tour operations, the majority of the
Group’s performance obligations are discharged on the customer’s departure date, which is when the Group currently recognises
the associated revenue. For Cruising, revenue is currently recognised on a straight-line basis over the duration of each cruise,
and this is likely to remain appropriate under the new standard. The standard is effective for annual periods beginning on or after
1 January 2018, and was endorsed by the EU on 22 September 2016.
c. IFRS 16 ‘Leases’
IFRS 16 specifies how to recognise, measure, present and disclose leases, and will essentially replace IAS 17. The impact of this
standard on the Group’s financial statements is still being assessed. The standard was issued in January 2016 and is effective for
annual reporting periods beginning on or after 1 January 2019, although this is yet to be endorsed by the EU.
d. Amendments to IAS 12 ‘Recognition of Deferred Tax Assets for Unrealised Losses’
The amendments to IAS 12 clarify the recognition of deferred tax assets for unrealised losses related to debt instruments
measured at fair value. The amendment is effective for annual periods beginning on or after 1 January 2017, with earlier application
being permitted, although this is yet to be endorsed by the EU and will have no effect on the Group’s financial statements.
e. Amendments to IAS 7 ‘Disclosure Initiative’
The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities
arising from financing activities, including both changes arising from cash flows and non-cash changes. The amendments are
effective for annual periods beginning on or after 1 January 2017, with earlier application being permitted, although this is yet
to be endorsed by the EU and will have no effect on the Group’s financial statements.
f. Clarifications to IFRS 15 ‘Revenue from Contracts with Customers’
The amendments provide some illustrative factors that an entity might consider in making the assessment as to whether promised
goods or services are distinct. The amendments are effective for annual periods beginning on or after 1 January 2018, with earlier
application being permitted, although this is yet to be endorsed by the EU.
g. Amendments to IFRS 2 ‘Classification and Measurement of Share-based Payment Transactions’
The amendments to IFRS 2 clarify the accounting for the effects of vesting and non-vesting conditions on cash-settled share-based
payments, the classification of share-based payment transactions with net settlement features for withholding tax obligations and the
accounting for a modification to the terms and conditions of a share-based payment that changes the transaction from cash-settled
to equity-settled. The amendments are effective for annual periods beginning on or after 1 January 2018, with earlier application being
permitted, although this is yet to be endorsed by the EU and will have no effect on the Group’s financial statements.
h. Amendments to IAS 40 ‘Transfers of Investment Property’
The amendments to IFRS 40 clarify that an entity can only reclassify a property to/from investment property when, and only when,
there is evidence that a change in the use of the property has occurred. The amendments are effective for annual periods beginning
on or after 1 January 2018, with earlier application being permitted, although this is yet to be endorsed by the EU and will have no
effect on the Group’s financial statements.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
2.5 Significant accounting judgements, estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below:
a. Valuation of insurance contract liabilities
For insurance contracts, estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and
for the expected ultimate cost of claims incurred but not yet reported (‘IBNR’) at the reporting date. It can take a significant period of
time before the ultimate claims cost can be established with certainty. For some types of policies, IBNR claims form the majority of
the liability in the statement of financial position.
The ultimate cost of outstanding claims is estimated by using a range of standard actuarial claims projection techniques, such as
Chain Ladder and Bornhuetter-Ferguson methods.
The main assumption underlying these techniques is that past claims development experience can be used to project future claims
development and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses,
average costs per claim and claim numbers based on the observed development of earlier years and expected loss ratios. Historical
claims development is mainly analysed by accident years, but can also be further analysed by geographical area, as well as by
significant business lines and claim types. Large claims are usually separately addressed, either by being reserved at the face value
of loss adjuster estimates or separately projected in order to reflect their future development. In most cases, no explicit assumptions
are made regarding future rates of claims inflation or loss ratios. Instead, the assumptions used are those implicit in the historical
claims development data on which the projections are based. Additional qualitative judgement is used to assess the extent to
which past trends may not apply in future, (e.g. to reflect one-off occurrences, changes in external or market factors such as public
attitudes to claiming, economic conditions, levels of claims inflation, judicial decisions and legislation, as well as internal factors such
as portfolio mix, policy features and claims handling procedures) in order to arrive at the estimated ultimate cost of claims that
present the likely outcome from the range of possible outcomes, taking account of all of the uncertainties involved.
The ultimate cost of claims is not discounted except for those in respect of PPOs. The valuation of these claims involves making
assumptions about the rate of inflation and the expected rate of return on assets to determine the discount rate. Due to the size
of PPO claims, the ultimate cost is highly sensitive to changes in these assumptions. The assumptions are reviewed at each
reporting date.
Similar judgements, estimates and assumptions are employed in the assessment of the adequacy of provisions for unearned
premium. Judgement is also required in determining whether the pattern of insurance service provided by a contract requires
amortisation of unearned premium on a basis other than time apportionment.
b. Goodwill impairment testing
The Group determines whether goodwill is impaired on an annual basis. This requires an estimation of the value in use of the CGUs
to which goodwill is allocated. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise
from the CGUs at a suitable discount rate in order to calculate present value.
c. Valuation of pension benefit obligation
The cost of defined benefit pension plans and the present value of the pension obligation are determined using actuarial valuations.
The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary
increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its
long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at
each reporting date.
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3 Segmental information
For management purposes, the Group is organised into business units based on their products and services. The Group has three
reportable operating segments as follows:
• Insurance: the segment primarily comprises general insurance products. Revenue is derived primarily from insurance premiums
and broking revenues. This segment is further analysed into four product sub-segments:
− Motor broking
− Home broking
− Other insurance broking
− Underwriting
• Travel: the segment primarily comprises the operation and delivery of package tours and cruise holiday products. The Group
owns and operates two cruise ships and throughout the year owned and operated one hotel. All other holiday products are
packaged together with third party supplied accommodation, flights and other transport arrangements.
• Emerging Businesses and Central Costs: the segment comprises the Group’s other businesses and its central cost base.
The other businesses primarily include the financial services product offering including the wealth management joint venture,
the domiciliary care services offering, a monthly subscription magazine product and the Group’s internal mailing house.
Segment performance is primarily evaluated using the Group’s key performance measure of profit before tax. Items not allocated
to a segment relate to transactions that do not form part of the on-going segment performance or which are managed on a
Group basis.
Transfer prices between operating segments are set on an arm’s length basis in a manner similar to transactions with third parties.
Segment income, expenses and results includes transfers between business segments which are then eliminated on consolidation.
Current taxes, deferred taxes and certain financial assets and liabilities are not allocated to segments as they are also managed
on a Group basis.
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Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
3 Segmental information (continued)
Motor
broking
£’m
Home
broking
£’m
Insurance
Other
insurance
broking
£’m
127.5
(3.1)
124.4
(79.2)
–
–
–
89.8
–
89.8
(28.6)
–
–
–
80.4
(17.0)
63.4
(31.8)
–
–
–
Emerging
Businesses
and Central
Costs
£’m
36.5
(15.0)
21.5
(43.1)
(2.4)
(18.6)
1.4
Total
£’m
410.0
(63.7)
346.3
(142.4)
7.2
–
–
Travel
£’m
432.0
(344.0)
88.0
(73.3)
0.2
–
–
Under-
writing
£’m
112.3
(43.6)
68.7
(2.8)
7.2
–
–
Adjustments
£’m
Total
£’m
(7.2)
–
(7.2)
7.2
–
–
–
871.3
(422.7)
448.6
(251.6)
5.0
(18.6)
1.4
–
–
–
–
–
–
(1.4)
–
(1.4)
45.2
61.2
31.6
73.1
211.1
14.9
(42.6)
–
183.4
–
–
–
–
–
9.9
–
–
9.9
45.2
61.2
31.6
73.1
211.1
24.8
(42.6)
–
193.3
345.8
68.3
(222.0)
1,003.1
1,195.2
2017
Revenue
Cost of sales
Gross profit
Administrative and
selling expenses
Investment income
Finance costs
Finance income
Share of loss
of joint venture
Profit before tax
and derivative
gains and losses
Net fair value gain on
derivative financial
instruments
Profit before tax
from continuing
operations
Total assets
less liabilities
All revenue is generated solely in the UK.
Cost of sales within the insurance segment comprises claims costs incurred on insurance policies underwritten by the Group
(see note 3b).
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3 Segmental information (continued)
Motor
broking
£’m
Home
broking
£’m
Insurance
Other
insurance
broking
£’m
89.5
(2.5)
87.0
(58.4)
–
–
90.0
(0.3)
89.7
(26.3)
–
–
82.4
(16.1)
66.3
(31.8)
–
–
Emerging
Businesses
and Central
Costs
£’m
37.1
(16.4)
20.7
(38.1)
(4.0)
(24.0)
Total
£’m
510.1
(192.2)
317.9
(121.9)
14.6
–
Travel
£’m
423.1
(337.2)
85.9
(72.8)
0.4
–
Under-
writing
£’m
248.2
(173.3)
74.9
(5.4)
14.6
–
Adjustments
£’m
Total
£’m
(7.1)
1.6
(5.5)
5.5
–
–
963.2
(544.2)
419.0
(227.3)
11.0
(24.0)
–
–
–
–
–
–
(1.3)
–
(1.3)
28.6
63.4
34.5
84.1
210.6
13.5
(46.7)
–
177.4
–
–
–
–
–
(1.2)
–
–
(1.2)
28.6
63.4
34.5
84.1
210.6
12.3
(46.7)
–
176.2
372.1
29.2
(242.6)
929.5
1,088.2
2016
Revenue
Cost of sales
Gross profit
Administrative and
selling expenses
Investment income
Finance costs
Share of loss
of joint ventures
Profit before tax
and derivative
gains and losses
Net fair value loss on
derivative financial
instruments
Profit before tax
from continuing
operations
Total assets
less liabilities
All revenue is generated solely in the UK.
Cost of sales within the insurance segment comprises claims costs incurred on insurance policies underwritten by the Group
(see note 3b).
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
3 Segmental information (continued)
Total assets less liabilities detailed as adjustments relates to the following unallocated items:
2017
£’m
1,485.0
(475.2)
(6.7)
1,003.1
2016
£’m
1,485.0
(547.7)
(7.8)
929.5
2017
£’m
292.4
(123.1)
54.3
12.2
1.4
101.4
169.3
240.7
410.0
2017
£’m
149.4
(103.8)
3.1
42.5
45.6
18.1
63.7
2017
£’m
109.1
63.7
1.4
1.5
48.5
8.0
17.5
1.9
251.6
2016
£’m
322.6
(6.9)
73.0
12.9
1.4
228.4
315.7
194.4
510.1
2016
£’m
219.3
(44.4)
2.5
172.4
174.9
17.3
192.2
2016
£’m
103.7
54.9
1.1
1.4
39.7
9.3
13.9
3.3
227.3
Goodwill (note 13)
Bank loans (note 26)
Deferred tax – non–pension scheme related
a. Analysis of insurance revenue
Gross earned premiums on insurance underwritten by the Group
Less: ceded to reinsurers
Net earned premiums on insurance underwritten by the Group
− Motor broking
− Home broking
− Other insurance broking
− Underwriting
Other income from insurance products
b. Analysis of insurance cost of sales
Gross claims incurred on insurance underwritten by the Group
Less: ceded to reinsurers
Net claims incurred on insurance underwritten by the Group
− Motor broking
− Underwriting
Other cost of sales
4 Administrative and selling expenses
Staff costs (note 8)
Marketing and fulfilment costs
Lease rentals
Auditors’ remuneration
Other administrative costs
Depreciation (note 16)
Amortisation of intangible assets (note 14)
Non-trading items
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4 Administrative and selling expenses (continued)
a. Auditors’ remuneration
Audit of the parent company and consolidated financial statements
Audit of subsidiary financial statements
Audit of prior year subsidiary financial statements
Audit-related assurance services
Total auditors’ remuneration
b. Non-trading items
Share-based payment costs (note 29)
Flotation and other costs
Restructuring costs
Acquisition of subsidiaries (note 12a)
Release of contingent consideration liability (note 12a)
Supplier insolvency
Impairment of property
Insurance claims
Other non-trading items
2017
£’m
0.3
0.7
–
0.2
1.2
2017
£’m
0.5
0.3
1.8
–
–
–
–
(0.7)
–
1.9
2016
£’m
0.3
0.7
0.2
0.2
1.4
2016
£’m
0.3
2.6
1.3
0.5
(7.1)
4.7
3.8
(3.1)
0.3
3.3
Flotation and other costs comprise the cost of awards made at the time of the IPO and which vest over a period of time post-award.
Restructuring costs represent costs associated with restructuring and reorganising a number of Group operations and includes
staff-related costs such as redundancy and other termination costs, together with various professional fees for advice and
processes associated with the restructuring.
During the prior year, a significant supplier of legal services to our customers and our partner in the Saga Law Limited joint venture
became insolvent and went into administration; this represents all costs incurred as a consequence and includes legal fees to put
in place new arrangements, the cost of re-doing work by a replacement law firm, and lost profits from the joint venture.
Impairment of property in the prior year represents the write-down of the carrying value of the Group's hotel in St Lucia following
the decision to dispose of this asset (note 16) and includes the costs of disposal.
During the current and prior years, the Group received amounts under insurance policies towards the cost of cancelled or curtailed
cruises; the costs of these operational issues were treated as non-trading items in prior periods.
5 Investment income
Investment income from insurance underwriting
Elimination of intra-group property rental income
Interest income from other segments
2017
£’m
7.2
(3.7)
1.5
5.0
2016
£’m
14.6
(4.1)
0.5
11.0
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
6 Finance costs
Interest and charges on debt and borrowings
Net fair value loss on derivative financial instruments
Unwinding of discount rates
Dividends paid by subsidiaries to non-controlling interests
Net finance expense on pension schemes
Net finance charges on finance leases and hire purchase contracts
7 Finance income
Net fair value gain on derivative financial instruments
Unwinding of discount rates
8 Directors and employees
Amounts charged to the income statement for the year are as follows:
Continuing operations
Wages and salaries
Social security costs
Pension costs (note 23)
Discontinued operations
Wages and salaries
Social security costs
Pension costs (note 23)
Total staff costs
2017
£’m
17.6
–
–
0.3
0.5
0.2
18.6
2017
£’m
9.9
1.4
11.3
2017
£’m
109.4
11.0
10.8
131.2
–
–
–
–
131.2
2016
£’m
21.8
1.2
0.9
–
1.1
0.2
25.2
2016
£’m
–
–
–
2016
£’m
106.9
9.2
9.8
125.9
164.2
9.6
0.4
174.2
300.1
Staff costs in respect of continuing operations have been allocated £22.1m (2016: £22.2m) to cost of sales and £109.1m
(2016: £103.7m) to administrative and selling expenses.
Average monthly number of employees
Insurance
Travel
Emerging Businesses and Central Costs
Continuing operations
Employees attributable to discontinued operations
Total staff numbers
2017
2,362
2,092
815
5,269
–
5,269
2016
2,237
2,175
735
5,147
14,465
19,612
The number of employees in the travel segment includes 848 (2016: 868) crew who are employed indirectly via a manning agency.
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8 Directors and employees (continued)
Directors’ remuneration
The information required by the Companies Act 2006 and the Listing Rules of the Financial Conduct Authority is contained on
pages 67-89 in the Directors’ Remuneration Report.
Compensation of key management personnel of the Group
Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling
the activities of the Group and comprise the Directors of the Company and the Chief Executive Officers of the major businesses
within the trading segments.
The amounts recognised as an expense during the financial year in respect of key management personnel are as follows:
Short-term benefits
Share-based payments
Post-employment benefits
9 Tax
The major components of the income tax expense are:
Consolidated income statement
Current income tax
Current income tax charge
Adjustments in respect of previous years
Deferred tax
Relating to origination and reversal of temporary differences
Effect of tax rate change on opening balance
Tax expense in the income statement
Reconciliation of tax expense to profit before tax multiplied by the UK corporation tax rate:
Profit before tax
Tax at rate of 20.0% (2016: 20.2%)
Adjustments in respect of previous years
Rate change adjustment on temporary differences
Effect of tax rate change on opening balance
Expenses not deductible for tax purposes:
− Other non-deductible expenses/non-taxed income
Tax expense in the income statement
2017
£’m
8.6
1.7
0.1
10.4
2016
£’m
6.9
1.3
0.1
8.3
2017
£’m
2016
£’m
36.2
(3.6)
32.6
3.0
0.4
36.0
32.7
(8.4)
24.3
2.8
1.0
28.1
2017
£’m
193.3
2016
£’m
176.2
38.7
(3.6)
–
0.4
0.5
36.0
35.6
(8.7)
(0.5)
1.0
0.7
28.1
The Group’s tax expense for the year was £36.0m (2016: £28.1m) representing a tax effective rate of 18.6% (2016: 15.9%).
The expense for the current year includes benefits of £2.7m and £0.3m from the utilisation under the group relief rules of tax losses
from Nestor Primecare Services Limited and Saga Investment Services Limited (see note 34) respectively. The tax losses for Nestor
Primecare Services Limited arose when it formed part of the Group in the prior year. Excluding the impact of the Nestor Primecare
Services Limited and Saga Investment Services Limited tax losses, the underlying tax effective rate was 20.2%.
The expense for the prior year included a £7.6m benefit from the utilisation under the group relief rules of tax losses from Acromas,
which arose when Saga was a part of the Acromas Group. Excluding the impact of the Acromas tax losses, the underlying tax
effective rate was 20.3%.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
9 Tax (continued)
Deferred tax
Excess of depreciation over capital allowances
Intangible assets
Retirement benefit scheme liabilities
Effect of tax rate change
Short-term temporary differences
Deferred tax charge
Net deferred tax (liabilities)/assets
Reflected in the statement of financial position as follows:
Deferred tax assets
Deferred tax liabilities
Net deferred tax (liabilities)/assets
Reconciliation of net deferred tax assets/(liabilities)
At 1 February
Tax credit recognised in the income statement
Tax credit recognised in other comprehensive income
Deferred taxes acquired in business combinations
Deferred tax charge attributable to discontinued operations
At 31 January
Consolidated statement
of financial position
Consolidated income
statement
2017
£’m
5.2
(3.5)
2.3
–
(9.2)
2016
£’m
5.0
(4.9)
3.4
–
1.2
(5.2)
4.7
2017
£’m
0.5
1.1
0.2
(0.4)
(4.8)
(3.4)
2017
£’m
16.3
(21.5)
(5.2)
2017
£’m
4.7
(3.4)
(6.5)
–
–
(5.2)
2016
£’m
(0.6)
1.0
(0.2)
(1.0)
(3.0)
(3.8)
2016
£’m
22.1
(17.4)
4.7
2016
£’m
17.4
(3.8)
(7.4)
(2.7)
1.2
4.7
Reductions were enacted in the Finance Act 2015 to reduce the rate from 20% to 19% from 1 April 2017, and to 18% from 1 April
2020. A further reduction to 17% from 1 April 2020 was announced on 16 March 2016 and has been enacted at the balance sheet
date. As a result, the closing deferred tax balances have been reflected at 17%.
The Group has tax losses which arose in the UK of £4.2m (2016: £4.2m) that are available indefinitely for offsetting against future
taxable profits of the companies in which the losses arose.
Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere
in the Group, they have arisen in subsidiaries that have been loss-making for some time, and there are no other tax planning
opportunities or other evidence of recoverability in the near future. If the Group were able to recognise all unrecognised deferred
tax assets, the profit would increase by £0.7m (2016: £0.8m).
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
10 Dividends
Declared during the year:
Final dividend for the year ended 31 January 2016: 5.0 pence per share (2015: 4.1 pence per share)
Interim dividend for the year ended 31 January 2017: 2.7 pence per share (2016: 2.2 pence per share)
2017
£’m
55.9
30.2
86.1
2016
£’m
45.8
24.6
70.4
Proposed after the end of the reporting period and not recognised as a liability:
Final dividend for the year ended 31 January 2017: 5.8 pence per share (2016: 5.0 pence per share)
64.8
55.9
The proposed dividend for the year ended 31 January 2017 is subject to approval by shareholders at the Annual General Meeting
on 22 June 2017 and would be paid on 30 June 2017.
11 Earnings per share
Basic EPS is calculated by dividing the profit after tax for the year attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the period. Diluted EPS is calculated by also including the
weighted average number of ordinary shares that would be issued on conversion of all potentially dilutive options.
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the
date of authorisation of these financial statements.
The calculation of basic and diluted EPS is as follows:
Profit attributable to ordinary equity holders
Profit from continuing operations
Weighted average number of ordinary shares
Original shares
297.3 million shares issued on 29 May 2014
Free shares issued on 5 June 2015
IPO share options exercised
Weighted average number for basic EPS
Dilutive options
IPO share options not yet exercised
Other share options not yet vested
LTIP share options not yet vested
Deferred Bonus Plan
Weighted average number for diluted EPS
Basic EPS
Basic EPS for continuing operations
Diluted EPS
Diluted EPS for continuing operations
2017
£’m
157.3
157.3
2016
£’m
140.9
148.1
’m
’m
800.0
297.3
7.0
9.7
1,114.0
3.5
0.1
4.4
0.3
1,122.3
14.1p
14.1p
14.0p
14.0p
800.0
297.3
7.3
6.5
1,111.1
6.6
2.4
–
0.2
1,120.3
12.7p
13.3p
12.6p
13.2p
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
12 Business combinations and acquisition of non-controlling interests
a. Acquisitions during the year ended 31 January 2017
There were no acquisitions in the year ended 31 January 2017.
b. Acquisitions in prior periods
i) Destinology Limited
On 13 August 2014, the Group acquired a 75% shareholding in Destinology Limited (‘Destinology’) with an option to acquire the
remaining 25% shareholding at a later date. Accordingly, the subsequent purchase was considered to be a linked transaction and
Destinology was consolidated as a 100% subsidiary.
ii) Bennetts Biking Services Limited
On 1 July 2015, the Group acquired a 100% shareholding in Bennetts Biking Services Limited (‘Bennetts’), the UK’s premier
motorbike insurance specialist.
The acquisition cost of £26.3m was settled in cash. Transaction costs of £0.5m were expensed and included as part of the
non-trading items within administrative and selling expenses. Cash of £0.4m was acquired with Bennetts, resulting in a net
cash outflow of £25.9m.
The fair values of the identifiable assets and liabilities of Bennetts acquired on the date of acquisition were:
Assets
Brand
Customer relationships
Contracts
Software
Trade and other receivables (gross and expected to be received)
Cash
Total assets
Liabilities
Trade and other payables
Deferred tax liability
Total liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition (note 13)
Purchase consideration transferred
£’m
3.8
3.9
5.8
1.6
1.4
0.4
16.9
1.5
2.7
4.2
12.7
13.6
26.3
The goodwill arising on acquisition of £13.6m represented the fair value arising from the acquired management structure, strategic
knowledge, capability and other synergies arising on acquisition.
From the date of acquisition, Bennetts contributed £10.5m of revenue and £0.4m to the Group profit before tax for the year ended
31 January 2016. Had these acquisitions occurred at the beginning of the financial year, contribution to Group revenue and profit
before tax for the full year would have been £19.3m and £1.5m respectively.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
13 Goodwill
Goodwill has been allocated to CGUs on initial recognition and for subsequent impairment testing, and is allocated to the insurance
and travel segments.
Cost
At 1 February 2015
Acquisition of a subsidiary (note 12b)
At 31 January 2016 and 31 January 2017
Impairment
At 31 January 2016 and 31 January 2017
Net book value
At 31 January 2017
At 31 January 2016
Goodwill deductible for tax purposes amounts to £nil (2016: £nil).
Goodwill
£’m
1,471.4
13.6
1,485.0
–
1,485.0
1,485.0
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
14 Intangible fixed assets
Cost
At 1 February 2015
Additions
Acquisition of a subsidiary (note 12b)
Disposals
At 31 January 2016
Additions
Disposals
At 31 January 2017
Amortisation and impairment
At 1 February 2015
Amortisation
Disposals
At 31 January 2016
Amortisation
Disposals
At 31 January 2017
Net book value
At 31 January 2017
At 31 January 2016
Contracts
£’m
Brands
£’m
Customer
relationships
£’m
Software
£’m
Total
£’m
–
–
5.8
–
5.8
–
–
5.8
–
0.8
–
0.8
1.3
–
2.1
3.7
5.0
14.1
–
3.8
–
17.9
–
–
17.9
1.3
1.6
–
2.9
1.8
–
4.7
13.2
15.0
7.4
–
3.9
–
11.3
–
–
11.3
1.4
3.9
–
5.3
3.4
–
8.7
2.6
6.0
61.3
16.5
1.6
(5.4)
74.0
19.6
–
93.6
45.3
7.8
(5.4)
47.7
11.6
–
59.3
82.8
16.5
15.1
(5.4)
109.0
19.6
–
128.6
48.0
14.1
(5.4)
56.7
18.1
–
74.8
34.3
53.8
26.3
52.3
Contracts, brands and customer relationships assets acquired through business combinations have been reviewed for indicators
of impairment (see note 15b).
The amortisation charge for the year is analysed as follows:
Cost of sales
Administrative and selling expenses (note 4)
2017
£’m
0.6
17.5
18.1
2016
£’m
0.2
13.9
14.1
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
15 Impairment of intangible assets
a. Goodwill
Goodwill acquired through business combinations has been allocated to CGUs on initial recognition. Additions to goodwill during
the prior year relating to Bennetts have been allocated to a new CGU relating to the new subsidiary only. The carrying value of
goodwill by CGU is as follows:
Insurance, excluding Bennetts
Insurance, Bennetts
Travel, excluding Destinology
Travel, Destinology
2017
£’m
1,398.6
13.6
59.8
13.0
1,485.0
2016
£’m
1,398.6
13.6
59.8
13.0
1,485.0
The Group has tested all goodwill for impairment at 31 January 2017. The impairment test compares the recoverable amount
of the goodwill of each CGU to its carrying value. The goodwill associated with the Bennetts and Destinology businesses have
been considered separately, however as these businesses become more integrated into the overall insurance and travel businesses
respectively, it is likely to be necessary to consider them as part of the insurance and travel CGUs.
The recoverable amount of each CGU has been determined based on a value-in-use calculation using cash flow projections from
the Group’s five year plan to 2021/22. Terminal values have been included using 3% as the expected long-term average growth
rate of the UK economy, and calculated using the Gordon growth model.
The pre-tax cash flows of each CGU have been discounted considering the weighted average cost of capital of a market participant
capable of acquiring a similar business. For the insurance and Bennetts CGUs, the pre-tax discount rate has been assessed to be
7.6%, and for the travel and Destinology CGUs, it has been assessed to be 10.0%.
The value-in-use calculation is most sensitive to the assumptions used for growth and for the discount rate. Accordingly, stress
testing has been performed on these key assumptions as part of the impairment test to determine whether any reasonably
foreseeable change in any of the key assumptions would cause the recoverable amount of the CGU to be lower than its
carrying amount.
To undertake the stress testing, terminal values were separately recalculated using 1.5% growth and nil growth, nil market inflation
and the relevant discount rate was separately increased by 3%. No evidence of any impairment was seen under any of these stress
test scenarios. Consequently, no impairment of goodwill has been recognised.
b. Other intangible assets
Separately identifiable intangible assets are valued and their appropriate useful lives established at the time of acquisition.
The carrying values of these assets and their remaining useful lives are reviewed annually for indicators of impairment.
The Group has assessed the recoverable amount of intangible assets as at 31 January 2017 and concluded that no impairment
is required.
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Financial statements
Notes to the consolidated financial statements continued
Financial statements
Notes to the consolidated financial statements continued
16 Property, plant and equipment
Cost or valuation
At 1 February 2015
Additions
Disposals
At 31 January 2016
Additions
Disposals
At 31 January 2017
Depreciation and impairment
At 1 February 2015
Provided during the year
Impairment (note 4)
Disposals
At 31 January 2016
Provided during the year
Disposals
At 31 January 2017
Net book value
At 31 January 2017
At 31 January 2016
Freehold
land &
buildings
£’m
Long
leasehold
land &
buildings
£’m
Assets in the
course of
construction
£’m
Cruise
ships
£’m
Plant &
equipment
£’m
85.5
6.4
–
91.9
4.8
–
96.7
25.5
8.5
–
–
34.0
11.6
–
45.6
–
13.1
–
13.1
2.0
–
15.1
–
–
–
–
–
–
–
–
47.8
10.3
(4.0)
54.1
5.8
(1.3)
58.6
30.2
10.4
–
(4.0)
36.6
8.7
(1.2)
44.1
Total
£’m
199.1
30.8
(4.0)
225.9
12.6
(7.0)
231.5
65.9
20.0
3.4
(4.0)
85.3
21.6
(6.9)
100.0
51.1
57.9
15.1
13.1
14.5
17.5
131.5
140.6
58.2
–
–
58.2
–
(5.7)
52.5
8.7
0.9
3.4
–
13.0
0.9
(5.7)
8.2
44.3
45.2
7.6
1.0
–
8.6
–
–
8.6
1.5
0.2
–
–
1.7
0.4
–
2.1
6.5
6.9
The net book value of plant and equipment includes £2.9m (2016: £2.2m) in respect of plant and machinery held under finance
lease agreements. The accumulated depreciation on these assets is £1.3m (2016: £0.5m).
The depreciation charge for the year is analysed as follows:
Cost of sales
Administrative and selling expenses (note 4)
2017
£’m
13.6
8.0
21.6
2016
£’m
10.7
9.3
20.0
During the year the Group disposed of assets with a net book value of £0.1m (2016: £nil). Profit arising on disposal was £0.1m
(2016: £nil).
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
17 Financial assets and financial liabilities
a. Financial assets
Fair value through profit or loss
Foreign exchange forward contracts
Fuel oil swaps
Loan funds
Hedge funds
Fair value through the hedging reserve
Foreign exchange forward contracts
Fuel oil swaps
Loans and receivables
Deposits with financial institutions
Available for sale investments
Debt securities
Money market funds
Unlisted equity shares
Loan notes
Total financial assets
Current
Non-current
2017
£’m
3.7
1.3
6.5
22.7
34.2
47.3
1.2
48.5
2016
£’m
3.3
–
19.3
26.7
49.3
16.7
–
16.7
309.5
309.5
413.6
413.6
79.5
122.1
1.3
5.2
208.1
85.2
75.9
0.2
3.8
165.1
600.3
644.7
310.5
289.8
600.3
288.8
355.9
644.7
Debt securities, money market funds and deposits with financial institutions relate to monies held by the Group’s insurance
business and are subject to contractual restrictions and are not readily available to be used for other purposes within the Group.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
17 Financial assets and financial liabilities (continued)
b. Financial liabilities
Fair value through profit or loss
Foreign exchange forward contracts
Fuel oil swaps
Fair value through hedging reserve
Foreign exchange forward contracts
Fuel oil swaps
Loans and borrowings
Bank loans (note 26)
Obligations under finance leases and hire purchase
Bank overdrafts
Total financial liabilities
Current
Non-current
2017
£’m
2016
£’m
1.0
0.3
1.3
1.0
–
1.0
5.5
4.1
9.6
1.2
1.9
3.1
475.2
2.9
9.4
487.5
547.7
2.2
17.9
567.8
489.8
580.5
12.5
477.3
489.8
27.8
552.7
580.5
c. Fair values
Financial instruments held at fair value are valued using quoted market prices or other valuation techniques.
Valuation techniques include net present value and discounted cash flow models, and comparison to similar instruments for which
market observable prices exist. Assumptions and market observable inputs used in valuation techniques include foreign currency
exchange rates and future oil prices.
The objective of using valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument
at the reporting date which would have been determined by market participants acting at arm’s length.
Observable prices are those that have been seen either from counterparties or from market pricing sources including Bloomberg.
The use of these depends upon the liquidity of the relevant market.
The fair value and carrying value of financial assets and financial liabilities are materially the same. Financial instruments held at fair
value have been categorised into a fair value measurement hierarchy as follows:
i) Level 1
These are valuation techniques that are based entirely on quoted market prices in an actively traded market and are the most
reliable. All money market funds and debt securities are categorised as Level 1 as the fair value is obtained directly from the
quoted market price.
ii) Level 2
These are valuation techniques for which all significant inputs are taken from observable market data. These include valuation
models used to calculate the present value of expected future cash flows and may be employed either when no active market
exists or when there are quoted prices available for similar instruments in active markets. The models incorporate various inputs
including the credit quality of counterparties, interest rate curves and forward rate curves of the underlying instrument.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
17 Financial assets and financial liabilities (continued)
c. Fair values (continued)
ii) Level 2 (continued)
All the derivative financial instruments are categorised as Level 2 as the fair values are obtained from the counterparty, brokers
or valued using observable inputs. Where material, CVA/DVA risk adjustment is factored into the fair values of these instruments.
As at 31 January 2017, the marked-to-market values of derivative assets are net of a credit valuation adjustment attributable
to derivative counterparty default risk.
The fair values are periodically reviewed by the Group’s treasury committees.
iii) Level 3
These are valuation techniques for which any one or more significant inputs are not based on observable market data.
The following tables provide the quantitative fair value hierarchy of the Group’s financial assets and financial liabilities:
As at 31 January 2017
Level 1
£’m
Level 2
£’m
Level 3
£’m
Total
£’m
Level 1
£’m
Level 2
£’m
As at 31 January 2016
Total
£’m
Level 3
£’m
Financial assets measured at fair value
Foreign exchange forwards
Fuel oil swaps
Loan funds
Hedge funds
Debt securities
Money market funds
Unlisted equity shares
Loan notes
Financial liabilities measured at fair value
Foreign exchange forwards
Fuel oil swaps
Assets for which fair values are disclosed
Deposits with institutions
–
–
–
–
79.5
–
–
–
51.0
2.5
6.5
22.7
–
122.1
–
–
–
–
–
–
–
–
1.3
5.2
51.0
2.5
6.5
22.7
79.5
122.1
1.3
5.2
–
–
–
–
85.2
–
–
–
20.0
–
19.3
26.7
–
75.9
–
–
–
–
–
–
–
–
0.2
3.8
20.0
–
19.3
26.7
85.2
75.9
0.2
3.8
–
–
2.0
0.3
–
–
2.0
0.3
–
–
6.7
6.0
–
–
6.7
6.0
–
309.5
–
309.5
–
413.6
–
413.6
Liabilities for which fair values are disclosed
Bank loans
Finance leases and hire purchase obligations
Bank overdrafts
–
–
–
475.2
2.9
9.4
–
–
–
475.2
2.9
9.4
–
–
–
547.7
2.2
17.9
–
–
–
547.7
2.2
17.9
There have been no transfers between Level 1 and Level 2 and no non-recurring fair value measurements of assets and liabilities
during the year (2016: none).
The unlisted equity shares represent the Group's investment in ‘K’ ordinary shares of Lyons Davidson LLP and have been valued
considering the cost of the initial investment and the post-investment trading profits.
The loan notes represent two notes with a face value of £3.5m each which attract uncompounded interest at a rate of 5%
and mature on 30 May 2018 and 30 May 2019. These notes are not actively traded in any market and have been valued by
determining a market-participant discount rate including a credit valuation adjustment to allow for counterparty default risk,
and discounting them to present value.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
17 Financial assets and financial liabilities (continued)
d. Cash flow hedges
i) Forward currency risk
During the year ended 31 January 2017, the Group designated 322 foreign exchange forward currency contracts as hedges
of highly probable foreign currency cash expenses in future periods. These contracts are entered into to minimise the Group’s
exposure to foreign exchange risk.
Foreign currency cash flow hedging instruments
Euro (EUR)
US Dollar (USD)
Other currencies
Total
Designated in the year
At 31 Jan 2017
At 31 Jan 2016
Volume
100
78
144
322
£’m
2.3
3.1
1.1
6.5
Volume
119
96
189
404
£’m
38.8
5.2
2.3
46.3
Volume
90
93
173
356
£’m
11.9
4.4
(0.8)
15.5
Hedging instruments for other currencies are in respect of Australian dollars, Canadian dollars, Swiss francs, Japanese yen,
New Zealand dollars, Norwegian krone, Swedish krona, Thai baht and South African rand.
ii) Commodity price risk
The Group uses derivative financial instruments to mitigate the risk of adverse changes in the price of fuel. The Group enters into
fixed price contracts (swaps) in the management of its fuel price exposures. These contracts are expected to reduce the volatility
attributable to price fluctuations of fuel and are designated as cash flow hedges. Hedging the price volatility of forecast fuel
purchases is in accordance with the risk management strategy outlined by the Board of Directors.
Commodity cash flow hedging instruments
Hedging instruments
Volume
77
£’m
0.5
Volume
103
£’m
1.2
Volume
44
£’m
(1.9)
Designated in the year
At 31 Jan 2017
At 31 Jan 2016
The table below summarises the present value of the highly probable forecast cash flows that have been designated in a hedging
relationship as at 31 January 2017. These cash flows are expected to become determined in profit or loss in the same period in
which the cash flows occur.
Determination period
1 February 17 to 31 July 17
1 August 17 to 31 January 18
1 February 18 to 31 July 18
1 August 18 to 31 January 19
1 February 19 to 31 July 19
1 August 19 to 31 January 20
Total
EUR
£’m
54.5
49.7
30.9
9.2
244.0
–
388.3
USD
£’m
27.8
22.2
11.4
1.9
–
–
63.3
Other
currencies
£’m
9.0
9.1
6.2
2.2
–
–
26.5
Currency
hedges
£’m
91.3
81.0
48.5
13.3
244.0
–
478.1
Fuel hedges
£’m
2.0
2.0
1.5
1.6
0.8
1.0
8.9
Total
£’m
93.3
83.0
50.0
14.9
244.8
1.0
487.0
The foreign currency hedge which will be determined in July 2019 of £244.0m relates to the delivery of the ship (note 30).
During the year, the Group recognised net gains of £11.1m (2016: £6.3m gains) on cash flow hedging instruments through other
comprehensive income into the hedging reserve. Additionally, the Group recognised net gains of £34.2m (2016: £10.3m gains)
through other comprehensive income into the hedging reserve, in relation to the specific hedging instrument for the acquisition
of a new ship (note 30). The overall net gains of £45.3m are offset by a net £1.9m loss on forecast transactions recognised in
the financial statements. The Group recognised a £0.8 loss (2016: £0.3m loss) though the income statement in respect of the
ineffective portion of hedges measured during the year.
There has been no de-designation of hedges during the year ended 31 January 2017 as a result of cash flows forecast that are
no longer expected to occur, or as a result of failed ineffectiveness testing. During the year, the Group recognised a £11.4m gain
through the income statement in respect of matured hedges, which has been recycled from other comprehensive income. No
amounts have been removed from the hedging reserve to be included in the carrying value of non-financial assets and liabilities.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
18 Financial risk management objectives and policies
The Group’s principal financial liabilities comprise loans and borrowings and trade and other payables. The main purpose of these
financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations. The Group’s principal
financial assets include debt securities, deposits with financial institutions, money market funds, loan funds and hedge funds. The
Group also enters into derivative transactions such as foreign exchange forward contracts, fuel and gas oil swaps and interest rate
swaps to manage its exposures to various risks.
The Group is exposed to market risk, credit risk, liquidity risk and insurance risk. The Group’s senior management oversees the
management of these risks, supported by the Group Treasury function and treasury committees within the key areas of the Group
that advise on financial risks and the appropriate financial risk governance framework for the Group. The treasury committees
ensure that the Group’s financial risks are governed by appropriate policies and procedures and that financial risks are identified,
measured and managed in accordance with the Group’s policies and risk objectives. All derivative activities are for risk management
purposes and are carried out by the Group’s Treasury function. It is the Group’s policy that no trading in derivatives for speculative
purposes may be undertaken.
The Group manages concentration risk through a policy of diversification that is outlined in the Group Treasury Policy and
approved by the Board. The policy defines the exposure limit to third party institutions based on the credit ratings of the individual
counterparties, combined with the views of the Board. On a monthly basis, exposure to each counterparty is calculated and
reported, and compliance with the policy is monitored.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.
a. Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market
prices. The Group is exposed to the following market risk factors:
• foreign currency risk;
• commodity price risk; and
• interest rate risk.
The Group has policies and limits approved by the Board for managing the market risk exposure. These set out the principles
that the business should adhere to for managing market risk and establishing the maximum limits the Group is willing to accept
considering strategy, risk appetite and capital resources.
The Group has the ability to monitor market risk exposure on a daily basis and has established limits for each component of
market risk.
The Group uses derivatives for hedging its exposure to foreign currency, fuel oil prices and interest rate risks. The market risk
policy explicitly prohibits the use of derivatives for speculative purposes.
i) Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of a financial asset or liability will fluctuate because of changes
in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s
operating activities (when revenue or expense is denominated in a different currency from the Group’s presentation currency).
The Group uses foreign exchange forward contracts to manage the majority of its transaction exposures. The foreign exchange
forward contracts, some of which are formally designated as hedging instruments, are entered into for periods consistent with
the foreign currency exposure of the underlying transactions, generally from one to 24 months. The foreign exchange forward
contracts vary with the level of expected foreign currency sales and purchases.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
18 Financial risk management objectives and policies (continued)
a. Market risk (continued)
i) Foreign currency risk (continued)
The following table demonstrates the sensitivity of the fair value of forward exchange contracts to a 5% change in US dollar
and Euro exchange rates, with all other variables held constant. The Group’s exposure to foreign currency changes for all other
currencies is not material. The impact is shown net of tax at the current rate.
2017
2016
Sensitivity of
+/- 5% rate change in
EUR – Trading
EUR – New ship
USD
Effect on profit
after tax and equity
+/- £4.9m
+/- £14.4m
+/- £3.2m
EUR – Trading
EUR – New ship
USD
+/- £5.3m
+/- £12.3m
+/- £3.6m
ii) Commodity price risk
The Group is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchase of fuel and
gas oil to sail its cruise ships and therefore require a continuous supply of fuel and gas oil. The volatility in the price of fuel and gas
oil has led to the decision to enter into commodity fuel and gas oil swap contracts. These contracts are expected to reduce the
volatility attributable to price fluctuations of fuel and gas oil. Managing the price volatility of forecast oil purchases is in accordance
with the risk management strategy outlined by the Board of Directors.
The Group manages the purchase price using forward commodity purchase contracts based on a 24 month forecast of the
required fuel oil supply.
The following table shows the sensitivity of the fair value of fuel oil swaps to changes in the US dollar exchange rate with all other
variables held constant. The impact is shown net of tax at the current rate.
2017
2016
Sensitivity of
+/- 5% rate change in
USD – Fuel oil price
Effect on profit
after tax and equity
+/- £0.8m
USD – Fuel oil price
+/- £0.8m
iii) Interest rate risk
Interest rate risk arises primarily from medium and long-term investments in fixed interest securities. The market value of these
investments is affected by the movement in interest rates. This is managed by a policy of holding all investments to maturity
by closely matching asset and liability duration.
It is also ensured that the investment portfolio has a diversified range of investments such that there is a combination of fixed
and floating rate securities, as well as other types of investments such as RPI linked securities and property.
Interest rate risk also arises in respect of the Group’s borrowings where the interest rate attaching to those borrowings is not fixed.
Where the Group perceives there to be a significant interest rate risk, it manages its exposure to such risks by purchasing interest
rate caps to limit the risk.
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18 Financial risk management objectives and policies (continued)
a. Market risk (continued)
The following table shows the sensitivity of financial assets and liabilities to changes in the LIBOR rate. The impact is shown net
of tax at the current rate.
2017
2016
Sensitivity of
+/- 0.25% rate change in
LIBOR
Effect on profit
after tax and equity
+/- £0.8m
LIBOR
+/- £0.6m
b. Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading
to a financial loss. The Group is exposed to credit risk in relation to its financial assets, outstanding derivatives and trade and
other receivables. The Group assesses its counterparty exposure in relation to the investment of surplus cash, fuel oil and foreign
currency contracts, and undrawn credit facilities. The Group primarily uses published credit ratings to assess counterparty strength
and therefore to define the credit limit for each counterparty in accordance with approved treasury policies.
The credit risk in respect of trade and other receivables is limited as payment from customers is generally required before services
are provided.
Credit risk in relation to deposits and derivative counterparties is managed by the Group’s Treasury department in accordance with
the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to
each counterparty. Counterparty credit limits are reviewed on a regular basis, and updated throughout the year subject to approval
of the Group Board. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through any
potential counterparty failure.
The Group is exposed to the risk of default on the reinsurance arrangements in its insurance business when amounts recoverable
under those arrangements become due. Credit risk in respect of reinsurance arrangements is assessed at the time of entering into
a reinsurance contract. The Group’s reinsurance programme is only placed with reinsurers which meet the Group’s financial
strength criteria.
The Group’s maximum exposure to credit risk for the components of the statement of financial position at 31 January 2017 and
31 January 2016 is the carrying amount except for derivative financial instruments. The Group’s maximum exposure for financial
guarantees and financial derivative instruments is noted under liquidity risk. None of the financial assets were impaired at the
reporting date.
The Group’s financial assets are analysed by Moody’s rating as follows:
Ratings analysis
31 January 2017
£’m
Debt securities
Money market funds
Deposits with financial institutions
Derivative assets
Loan notes
Loan funds
Hedge funds
Unlisted equity shares
Reinsurance assets
Total
AAA
79.5
122.1
30.0
–
–
–
–
–
231.6
–
231.6
AA
–
–
90.9
50.0
–
–
–
–
140.9
57.5
198.4
A
–
–
188.6
3.5
–
–
–
–
192.1
46.7
238.8
< A
–
–
–
–
–
–
–
–
–
–
–
Unrated
–
–
–
–
5.2
6.5
22.7
1.3
35.7
1.0
36.7
Total
79.5
122.1
309.5
53.5
5.2
6.5
22.7
1.3
600.3
105.2
705.5
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Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
18 Financial risk management objectives and policies (continued)
b. Credit risk (continued)
Ratings analysis (continued)
31 January 2016
£’m
Debt securities
Money market funds
Deposits with financial institutions
Derivative assets
Loan notes
Loan funds
Hedge funds
Unlisted equity shares
Reinsurance assets
Total
AAA
85.2
75.9
30.0
–
–
–
–
–
191.1
–
191.1
AA
–
–
140.3
10.1
–
–
–
–
150.4
57.9
208.3
A
–
–
243.3
9.9
–
–
–
–
253.2
47.3
300.5
< A
–
–
–
–
–
–
–
–
–
–
–
Unrated
–
–
–
–
3.8
19.3
26.7
0.2
50.0
1.2
51.2
Total
85.2
75.9
413.6
20.0
3.8
19.3
26.7
0.2
644.7
106.4
751.1
c. Liquidity risk
Liquidity risk is the risk that the Group, although solvent, either does not have available sufficient financial resources to enable it to
meet its obligations as they fall due, or can secure them only at excessive cost. The Group’s approach to managing liquidity risk
is to evaluate current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash or availability on its
revolving credit facility. The Group manages its obligations to pay claims to policyholders as they fall due by matching the maturity
of investments to the expected maturity of claims payments.
The table below analyses the maturity of the Group’s financial liabilities on contractual undiscounted payments. The analysis of
non-derivative financial liabilities is based on the remaining period at the reporting date to the contractual maturity date. The analysis
of claims outstanding is based on the expected dates on which the claims will be settled.
On demand
9.4
0.1
–
138.9
182.5
–
330.9
On demand
17.9
0.6
–
129.7
191.6
–
339.8
Less than
1 year
–
13.3
193.0
–
–
2.1
208.4
Less than
1 year
–
16.9
212.3
–
–
9.3
238.5
1 to 2
years
–
13.1
129.1
–
–
0.2
142.4
1 to 2
years
–
17.0
161.7
–
–
3.4
182.1
2 to 5
years
480.0
3.2
182.7
–
–
–
665.9
2 to 5
years
555.0
21.0
221.0
–
–
–
797.0
Over 5
years
–
–
120.1
–
–
–
120.1
Over 5
years
–
–
139.0
–
–
–
139.0
Total
489.4
29.7
624.9
138.9
182.5
2.3
1,467.7
Total
572.9
55.5
734.0
129.7
191.6
12.7
1,696.4
31 January 2017
£’m
Loans and borrowings
Interest on loans and borrowings
Insurance contract liabilities
Other liabilities
Trade and other payables
Derivative liabilities
31 January 2016
£’m
Loans and borrowings
Interest on loans and borrowings
Insurance contract liabilities
Other liabilities
Trade and other payables
Derivative liabilities
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18 Financial risk management objectives and policies (continued)
d. Insurance risk
Insurance risk arises from the inherent uncertainties as to the occurrence, cost and timing of insured events that could lead to
significant individual or aggregated claims in terms of quantity or value. This could be for a number of reasons, including weather-
related events, large individual claims, changes in claimant behaviour patterns such as increased levels of fraudulent activities, the
use of PPOs, prospective or retrospective legislative changes, unresponsive and inaccurate pricing or reserving methodologies and
the deterioration in the Group’s ability to effectively and efficiently handle claims while delivering excellent customer service.
The Group manages insurance risk within its risk management framework as set out by the Board. The key policies and processes
of mitigating these risks have been implemented which include underwriting partnership arrangements, reinsurance and excess
of loss contracts, pricing policies and claims management, and administration policies.
i) Underwriting and pricing risk
The Group primarily underwrites motor insurance for private cars in the UK. The book consists of a large number of individual risks
which are widely spread geographically which helps to minimise concentration risk. The Group has controls in place to restrict
access to its products to only those risks it wishes to underwrite.
The Group has management information to allow it to monitor underwriting performance on a continuous basis and the ability to
make pricing and underwriting changes quickly. The Group undertakes detailed statistical analyses of underwriting experience for
each rating factor and combinations of rating factors to enable it to adjust pricing for emerging trends.
ii) Reserving risk
Reserving risk is the risk that insufficient funds have been set aside to settle claims as they fall due. The Group undertakes regular
internal actuarial reviews and commissions external actuarial reviews at least once a year. These reviews estimate the future
liabilities in order to consider the adequacy of the provisions.
Claims which are subject to PPOs are a significant source of uncertainty in the claims reserves. Cash flow projections are
undertaken for PPO claims to estimate the gross and net of reinsurance provisions required. PPO provisions are discounted
to reflect future investment returns and cost inflation.
iii) Reinsurance
The Group purchases reinsurance to reduce the impact of individual large losses or accumulations from a single catastrophe event.
During 2016, the Group entered into a funds-withheld quota share reinsurance contract that reinsures 75% of the Group’s motor
claim risks, effective from 1 February 2016. Prior to this, the Group had quota share reinsurance in place for third party branded
motor business for drivers aged under 50. The Group also purchases individual excess of loss protections for the motor portfolio to
limit the impact of a single large claim. Similar protections are in place for all years for which the Group has written motor business.
Reinsurance recoveries on individual excess of loss protections can take many years to collect, particularly if a claim is subject to a
PPO. This means that the Group has exposure to reinsurance credit risk for many years. Reinsurers are therefore required to have
strong credit ratings and their financial health is regularly monitored.
iv) Sensitivities
The following table demonstrates the impact on profit and loss and equity of a 1 percentage point variation in the recorded loss ratio
at 31 January 2017 and 31 January 2016. The impact of a 1% change in claims outstanding is also shown at the same dates. The
impact is shown net of reinsurance and tax at the current rate.
Impact of 1 percentage point change in loss ratio
2017
+/- £1.4m
2016
+/- £2.5m
Impact of 1% change in claims outstanding
+/- £2.9m
+/- £4.6m
Impact of a 0.25 percentage point change in discount rate for PPOs
+/- £2.7m
+/- £5.7m
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Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
18 Financial risk management objectives and policies (continued)
e. Operational risk
Effective operational risk management requires the Group to identify, assess, manage, monitor, report and mitigate all areas of
exposure. The Group operates across a range of segments and operational risk is inherent in all of the Group’s products and
services, arising from the operation of assets, from external events and dependencies, and from internal processes and systems.
The Group manages its operational risk through the risk management framework agreed by the Board, and through the use of risk
management tools which together ensure that operational risks are identified, managed and mitigated to the level accepted, and
that contingency processes and disaster recovery plans are in place. Regular reporting is undertaken to segment boards and
includes details of new and emerging risks, as well as monitoring of existing risks. Testing of contingency processes and disaster
recovery plans is undertaken to ensure the effectiveness of these processes.
All of the Group’s operations are dependent on the proper functioning of its IT and communication systems; on its properties and
other infrastructure assets; on the need to adequately maintain and protect customer and employee data and other information;
and on the ability of the Group to attract and retain staff. Specific areas of operational risk by segment include:
i) Insurance
The Insurance segment is required to comply with various operational regulatory requirements primarily in the UK but also within
Gibraltar for its underwriting business. To the extent that significant external events could increase the incidence of claims, these
would place additional strain on the claims handling function but any financial impact of such an event is considered to be an
insurance risk.
ii) Travel
The travel segment operates two cruise ships which are the Group’s largest trading assets. Risk to the operation of these cruise
ships arises from the impact of mechanical or other malfunction, non-compliance with regulatory requirements, and from global
weather and socio-economic events. The tour holidays operated by the segment are also affected by global weather and socio-
economic events which impact either the Group directly or its suppliers.
iii) Emerging Businesses and Central Costs
The financial services product business is required to comply with various operational regulatory requirements in the UK.
The healthcare business provides a range of domiciliary services. Risk to the operation of this service arises mainly from the
availability of appropriately skilled staff to deliver the level and standard of care required, and from the oversight of the delivery
of these services.
19 Interests in unconsolidated structured entities
A structured entity is defined as an entity that has been designed so that voting or similar rights are not the dominant factor
in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the relevant activities
are directed by means of contractual agreements. The Group has interests in unconsolidated structured entities in the form of
investment funds comprising:
• hedge funds;
• bank loan funds; and
• money market funds.
The nature and purpose of the hedge and bank loan funds is to diversify the investment portfolio and enhance the overall yield,
whilst maintaining an acceptable level of risk for the portfolio as a whole.
The primary activity of the hedge funds is to invest in a wide range of securities and markets, and the funds may take a variety
of positions in these markets. Bank loan funds invest in secured loans to companies rated below investment grade.
The nature and purpose of the money market funds is to provide maximum security and liquidity for the funds invested whilst also
providing an adequate return. The money market funds used by the Group are all members of the Institutional Money Market Funds
Association. They are thus required to maintain specified liquidity and diversification characteristics of their underlying portfolios
which comprise investment grade investments in financial institutions.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
19 Interests in unconsolidated structured entities (continued)
The Group invests in unconsolidated structured entities as part of its investment activities. The Group does not sponsor any of the
unconsolidated structured entities.
At 31 January 2017, the Group’s total interest in unconsolidated structured entities was £151.3m analysed as follows:
Loan funds
Hedge funds
Money market funds
Carrying
value
£m
6.5
22.7
122.1
Interest
income
£m
0.3
–
0.4
Fair value
gains
£m
0.3
0.8
–
These investments are typically managed under credit risk management as described in note 18. The Group’s maximum exposure
to loss on the interests presented above is the carrying amount of the Group’s investments. No further loss can be made by the
Group in relation to these investments. For this reason, the total assets of the entities are not considered meaningful for the
purposes of understanding the related risks and so have not been presented.
20 Trade and other receivables
Trade receivables
Other receivables
Prepayments
Deferred acquisition costs
Other taxes and social security costs
The ageing of trade receivables is as follows:
2017
£’m
142.2
15.1
20.1
17.8
3.5
198.7
2016
£’m
133.6
12.0
21.3
16.6
4.5
188.0
2017
2016
Past due
Neither past
due nor
impaired
£’m
128.6
118.5
Total
£’m
142.2
133.6
< 30 days
£’m
4.1
7.2
30-60 days
£’m
2.2
1.5
61-90 days
£’m
1.3
1.4
91-120
days
£’m
1.2
0.7
> 120 days
£’m
4.8
4.3
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
20 Trade and other receivables (continued)
As at 31 January 2017, impairment provisions totalling £9.2m (2016: £8.5m) were made against trade receivables with an initial
value of £151.4m (2016: £142.1m). The movements in the provision for impairment of receivables are as follows:
At 1 February 2015
Charge for the year
Utilised in the year
Unused amounts reversed
At 31 January 2016
Charge for the year
Utilised in the year
Unused amounts reversed
At 31 January 2017
Individually
impaired
£’m
0.3
0.2
(0.1)
(0.1)
0.3
1.4
(1.3)
–
0.4
Collectively
impaired
£’m
8.7
7.5
(3.5)
(4.5)
8.2
8.1
(7.4)
(0.1)
8.8
Total
£’m
9.0
7.7
(3.6)
(4.6)
8.5
9.5
(8.7)
(0.1)
9.2
See note 18 on credit risk of trade receivables, which explains how the Group manages and measures credit quality of trade
receivables that are neither past due nor impaired.
21 Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Cash and short-term deposits
Money markets funds
Bank overdraft
Cash and cash equivalents in the cash flow statement
2017
£’m
55.5
53.2
108.7
122.1
(9.3)
221.5
2016
£’m
36.9
69.6
106.5
75.9
(18.0)
164.4
Included within cash and cash equivalents are amounts held by the Group’s travel and insurance businesses which are subject to
contractual or regulatory restrictions. These amounts held are not readily available to be used for other purposes within the Group
and total £206.4m (2016: £156.6m).
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods
of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the
respective short-term deposit rates.
22 Trade and other payables
Trade and other payables
Other taxes and social security costs
Assets in the course of construction
Accruals
All trade and other payables are current in nature.
2017
£’m
123.6
12.1
2.8
44.0
182.5
2016
£’m
123.2
12.2
13.1
43.1
191.6
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
23 Retirement benefit schemes
The Group operates retirement benefit schemes for the employees of the Group consisting of defined contribution plans and
defined benefit plans.
a. Defined contribution plans
There are a number of defined contribution schemes in the Group. The total charge for the year in respect of the defined
contribution schemes was £0.8m (2016: £1.3m).
The assets of these schemes are held separately from those of the Group in funds under the control of Trustees.
b. Defined benefit plans
The Group operates a funded defined benefit scheme, the Saga Pension Scheme (‘Saga scheme’), which is open to new members
who accrue benefits on a career average salary basis. The assets of the scheme are held separately from those of the Group in
independently administered funds.
The scheme is governed by the employment laws of the UK. The level of benefits provided depends on the member’s length of
service and salary at retirement age. The scheme requires contributions to be made to a separately administered fund which is
governed by a Board of Trustees, and consists of an equal number of employer and employee representatives. The Board of
Trustees is responsible for the administration of the plan assets and for the definition of the investment strategy.
The long-term investment objectives of the Trustees and the Group are to limit the risk of the assets failing to meet the liabilities of
the scheme over the long term, and to maximise returns consistent with an acceptable level of risk so as to control the long-term
costs of the scheme. To meet those objectives, the scheme’s assets are invested in different categories of assets, with different
maturities designed to match liabilities as they fall due. The investment strategy will continue to evolve over time and is expected
to match to the liability profile increasingly closely. The pension liability is exposed to inflation rate risks and changes in the life
expectancy for pensioners. As the plan assets include investments in quoted equities, the Group is exposed to equity market risk.
The Group has provided a super security to the Trustees of the Saga scheme, which ranks before any liabilities under the Senior
Facilities Agreement (as detailed in note 26). The value of the security is capped at £32.5m.
During the prior year, the Group operated two other funded defined benefit schemes, the Nestor Healthcare Group Retirement
Benefits Scheme and the Healthcall Group Limited Pension Scheme (‘Nestor schemes’), which provide benefits based on final
salary and are closed to new members. Both of these schemes were part of the liabilities held for sale and were disposed of when
the Group completed the sale of the local authority section of the healthcare business, Allied Healthcare, on 30 November 2015.
The fair value of the assets and present value of the obligations of the Saga defined benefit scheme are as follows:
Fair value of scheme assets
Present value of defined benefit obligation
Defined benefit scheme liability
2017
£’m
276.8
(290.5)
(13.7)
2016
£’m
218.6
(237.4)
(18.8)
The present values of the defined benefit obligation, the related current service cost and any past service costs have been
measured using the projected unit credit method.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
23 Retirement benefit schemes (continued)
b. Defined benefit plans (continued)
The following table summarises the components of the net benefit expense recognised in the income statement and amounts
recognised in the statement of financial position for the schemes for the year ended 31 January 2017:
Saga scheme
Nestor schemes
Fair value of
scheme
assets
£’m
218.6
Defined
benefit
obligation
£’m
(237.4)
Defined
benefit
scheme
liability
£’m
(18.8)
Fair value of
scheme
assets
£’m
–
Defined
benefit
obligation
£’m
–
Defined
benefit
scheme
liability
£’m
–
–
8.2
8.2
(11.2)
(10.0)
(8.7)
(18.7)
11.2
(10.0)
(0.5)
(10.5)
–
49.7
–
49.7
–
–
–
38.5
11.5
276.8
29.5
29.5
(78.8)
4.2
(33.9)
(0.5)
(290.5)
(78.8)
4.2
4.6
11.0
(13.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
Defined
benefit
scheme
liability
£’m
(18.8)
(10.0)
(0.5)
(10.5)
–
49.7
29.5
(78.8)
4.2
4.6
11.0
(13.7)
1 February 2016
Pension cost charge to income statement
Service cost
Net interest
Included in income statement
Benefits paid
Return on plan assets (excluding amounts
included in net interest expense)
Actuarial changes arising from changes
in demographic assumptions
Actuarial changes arising from changes
in financial assumptions
Experience adjustments
Sub-total included in other
comprehensive income
Contributions by employer
31 January 2017
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
23 Retirement benefit schemes (continued)
b. Defined benefit plans (continued)
The following table summarises the components of the net benefit expense recognised in the income statement and amounts
recognised in the statement of financial position for the schemes for the year ended 31 January 2016:
Saga scheme
Nestor schemes
Fair value of
scheme
assets
£’m
212.3
Defined
benefit
obligation
£’m
(252.7)
Defined
benefit
scheme
liability
£’m
(40.4)
Fair value of
scheme
assets
£’m
–
Defined
benefit
obligation
£’m
–
Defined
benefit
scheme
liability
£’m
–
(8.8)
(7.8)
(16.6)
4.5
(8.8)
(1.1)
(9.9)
–
–
1.3
1.3
(1.6)
(0.1)
(1.7)
(1.8)
1.6
(0.1)
(0.4)
(0.5)
–
–
(7.0)
(1.9)
–
(1.9)
(8.9)
(0.3)
(0.3)
27.5
0.3
32.0
(0.1)
–
(237.4)
27.5
0.3
20.5
11.0
–
(18.8)
–
–
–
(3.5)
12.4
(10.2)
–
1.2
5.3
1.5
9.6
–
(7.8)
–
1 February 2015
Pension cost charge to income statement
Service cost
Net interest
Included in income statement
Benefits paid
Return on plan assets (excluding amounts
included in net interest expense)
Actuarial changes arising from changes
in demographic assumptions
Actuarial changes arising from changes
in financial assumptions
Experience adjustments
Sub-total included in other
comprehensive income
Contributions by employer
Movement in liabilities held for sale
31 January 2016
–
6.7
6.7
(4.5)
(7.0)
–
–
–
(11.5)
11.1
–
218.6
The major categories of assets in the Saga scheme are as follows:
Equities
Bonds
Property
Hedge funds
Cash and other
Total
Equities and bonds are all quoted in active markets whilst property and hedge funds are not.
Total
Defined
benefit
scheme
liability
£’m
(40.4)
(8.9)
(1.5)
(10.4)
–
1.2
5.3
1.5
6.1
12.4
(18.0)
–
2017
£’m
63.7
135.9
25.7
50.5
1.0
276.8
0.9
32.8
1.8
26.6
23.4
(18.0)
(18.8)
2016
£’m
42.0
117.1
23.8
33.7
2.0
218.6
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
23 Retirement benefit schemes (continued)b. Defined benefit plans (continued)
The principal assumptions used in determining pension benefit obligations for the Saga scheme are shown below:
Real rate of increase in salaries
Real rate of increase of pensions in payment
Real rate of increase of pensions in deferment
Discount rate – Pensioner
Discount rate – Non Pensioner
Inflation – Pensioner
Inflation – Non Pensioner
2017
0%
0%
0%
2.9%
3.0%
3.4%
3.4%
2016
0%
0%
0%
3.6%
3.8%
3.0%
3.2%
Mortality assumptions are set using standard tables based on specific experience where available and allow for future mortality
improvements. The Saga scheme assumption is that a member currently aged 60 will live on average for a further 27 years if they
are male and on average for a further 29 years if they are female.
A quantitative sensitivity analysis for significant assumptions as at 31 January 2017 and their impact on the net defined benefit
obligation is as follows:
Assumptions
Sensitivity
Impact £m
Discount rate
+/- 0.25%
Future inflation
+/- 0.25%
Life expectancy
+/- 1 year
Increase Decrease
18.6
(17.2)
Increase Decrease
(11.9)
12.6
Increase Decrease
(8.0)
7.5
Future salary
+/- 0.5%
+/- 0.0
Note: a positive impact represents an increase in the net defined benefit liability.
The sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. When calculating
the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when
calculating the pension liability recognised within the statement of financial position.
The expected contribution to the Saga scheme for the next year is £11.5m and average duration of the defined benefit plan
obligation at the end of the reporting period is 23 years.
Formal actuarial valuations take place every three years for the scheme. The assumptions adopted for actuarial valuations are determined
by the Trustees and are agreed with the Group and are normally more prudent than the assumptions adopted for IAS 19 purposes, which
are best estimate. Where a funding deficit is identified, the Group and the Trustees may agree a deficit recovery plan.
The latest valuation of the Saga scheme was at 31 January 2014. Further to this valuation, a recovery plan is in place
for the scheme.
Under the agreed recovery plan, the Group made an additional payment of £2.0m during the year ended 31 January 2017,
and will make further payments of £2.0m in each of the next eight years, with the last payment being made by 28 February 2024.
The total expected contributions in the year ending 31 January 2018 are £11.5m, inclusive of the £2.0m additional payment.
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24 Insurance contract liabilities and reinsurance assets
The analysis of gross and net insurance liabilities is as follows:
Gross
Claims outstanding
Provision for unearned premiums
Total gross liabilities
Recoverable from reinsurers
Claims outstanding
Provision for unearned premiums
Total reinsurers’ share of insurance liabilities (as presented on the face of the statement of
financial position)
Amounts recoverable under funds withheld quota share agreements recognised within trade payables:
– Claims outstanding
– Provision for unearned premiums
Total reinsurers’ share of insurance liabilities after funds withheld quota share
Analysed as:
Claims outstanding
Provision for unearned premiums
Total reinsurers’ share of insurance liabilities after funds withheld quota share
Net
Claims outstanding
Provision for unearned premiums
Total net insurance liabilities
Amounts recoverable under funds withheld quota share agreements recognised within trade payables:
– Claims outstanding
– Provision for unearned premiums
Total net insurance liabilities after funds withheld quota share
Analysed as:
Claims outstanding
Provision for unearned premiums
Total net insurance liabilities after funds withheld quota share
2017
£’m
517.0
125.3
642.3
2017
£’m
93.8
3.7
97.5
55.5
66.1
219.1
149.3
69.8
219.1
2017
£’m
423.2
121.6
544.8
(55.5)
(66.1)
423.2
367.7
55.5
423.2
2016
£’m
561.6
141.7
703.3
2016
£’m
101.6
4.8
106.4
–
–
106.4
101.6
4.8
106.4
2016
£’m
460.0
136.9
596.9
–
–
596.9
460.0
136.9
596.9
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
24 Insurance contract liabilities and reinsurance assets (continued)
Reconciliation of movements in claims outstanding
Gross claims outstanding at 1 February
Less: reinsurance claims outstanding
Net claims outstanding at 1 February
Gross claims incurred
Less: reinsurance recoveries
Net claims incurred (note 3b)
Gross claims paid
Less: received from reinsurance
Net claims paid
Gross claims outstanding at 31 January
Less: reinsurance claims outstanding
Net claims outstanding at 31 January
Reconciliation of movements in the provision for net unearned premiums
Gross unearned premiums at 1 February
Less: unearned reinsurance premiums
Net unearned premiums at 1 February
Gross premiums written
Less: outward reinsurance premium
Net premiums written
Gross premiums earned
Less reinsurance premium earned
Net premiums earned (note 3a)
Gross unearned premiums at 31 January
Less: unearned reinsurance premiums
Net unearned premiums at 31 January
2017
£’m
561.6
(101.6)
460.0
149.4
(103.8)
45.6
(194.0)
56.1
(137.9)
517.0
(149.3)
367.7
2017
£’m
141.7
(4.8)
136.9
276.0
(188.1)
87.9
(292.4)
123.1
(169.3)
125.3
(69.8)
55.5
2016
£’m
552.4
(60.2)
492.2
219.3
(44.4)
174.9
(210.1)
3.0
(207.1)
561.6
(101.6)
460.0
2016
£’m
152.3
(3.2)
149.1
312.0
(8.5)
303.5
(322.6)
6.9
(315.7)
141.7
(4.8)
136.9
The loss on purchasing reinsurance in 2017 was £16.5m (2016: £37.5m profit).
On 27 February 2017, the UK Government announced its decision to reduce the Ogden discount rate from 2.5% to -0.75%.
The insurance liabilities presented here and on the face of the Group’s balance sheet incorporate the effect of this change.
Discounting
Claims outstanding provisions are calculated on an undiscounted basis, with the exception of PPOs made by the courts as part
of a bodily injury claim settlement. Claims outstanding provisions for PPOs are discounted at a rate of -1.5% (2016: -1.5%)
representing the Group’s view on long-term carer wage inflation less the expected return on holding the invested financial assets
associated with these claims.
The value of claims outstanding before discounting was £624.9m (2016: £734.0m) gross of reinsurance and £410.0m
(2016: £539.0m) net of reinsurance.
The period between the balance sheet date and the estimated final payment date was calculated using Ogden life expectancy
tables, with appropriate adjustments where necessary for impaired life. The average life expectancy from PPO settlement date to
the final PPO payment was 39 years (2016: 42 years) and the rate of investment return used to determine the discounted value
of claims provisions was 2.0% (2016: 2.0%).
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
24 Insurance contract liabilities and reinsurance assets (continued)
Analysis of net claims incurred: claims development tables
The following table details the Group’s initial estimate of ultimate net claims incurred over the past five years and the re-estimation at
subsequent financial period ends. The table details the net incurred claims (net of reinsurance recoveries) on an accident year basis.
Financial Year ended 31 January
2010
£’m
2011
£’m
2012
£’m
2013
£’m
2014
£’m
2015
£’m
2016
£’m
2017
£’m
Total
£’m
Claims
paid
£’m
Claims
outstanding
£’m
Accident Year
2009 and earlier
2010
2011
2012
2013
2014
2015
2016
2017
Claims handling
costs
(5.5)
202.1
–
–
266.0
(9.2)
(4.3)
(2.8)
302.3
(11.0)
(4.0)
(5.2)
(25.6)
315.4
(1.2)
(5.5)
(4.6)
(31.1)
(14.6)
276.8
(3.2)
(3.1)
(13.3)
(0.6)
(22.9)
(14.7)
219.1
(3.0)
(2.1)
(7.2)
(17.3)
(19.8)
(23.4)
5.3
220.9
196.6
266.0
286.0
269.6
219.8
161.3
153.4
9.0
21.5
17.4
205.6 276.1 301.6 287.0 237.0 179.3 174.9
15.6
18.0
10.1
17.2
177.7
225.5
215.8
243.5
227.7
215.2
224.1
94.0
(167.4)
(203.1)
(200.1)
(209.2)
(171.2)
(148.2)
(130.6)
(55.3)
(3.6)
(5.4)
(7.4)
(11.9)
(14.6)
(11.0)
(9.2)
3.2
94.0
34.1
11.5
45.6
19.2
10.3
22.4
15.7
34.3
56.5
67.0
93.6
38.7
357.7
10.0
367.7
The development of the associated loss ratios on the same basis is as follows:
Financial Year ended 31 January
2010
2011
2012
2013
2014
2015
2016
2017
Accident Year
2010
2011
2012
2013
2014
2015
2016
2017
73%
73%
78%
72%
78%
76%
70%
76%
70%
75%
68%
75%
62%
72%
75%
67%
71%
62%
66%
71%
67%
66%
69%
57%
62%
65%
69%
70%
64%
67%
54%
58%
62%
66%
71%
55%
Favourable claims development over the year has resulted in a £59.9m (2016: £68.0m) reduction in the net claims incurred in
respect of prior years. Against this, the insolvency of a significant legal services supplier has required an increase in prior year
net claims of £nil (2016: £0.5m) to be created; the cost of this has been included as part of total non-trading items (note 4b).
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Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
25 Other liabilities
Advance receipts
Deferred revenue
Group relief payable (note 9)
Current
Non-current
2017
£’m
123.4
11.5
–
134.9
133.8
1.1
134.9
2016
£’m
113.0
12.7
7.6
133.3
133.2
0.1
133.3
Advance receipts comprises amounts received within the travel segment for holidays and cruises with departure dates after the
reporting date, and insurance premiums and sales revenues received in the insurance segment in respect of insurance policies
which commence after the reporting date.
Deferred revenue represents the unearned elements of revenue relating to the media business. The amount comprises subscriptions
for magazines to be delivered after the reporting date and revenue for advertising to be included after the reporting date.
26 Loans and borrowings
Bank loans
Revolving credit facility
Accrued interest payable
Less: deferred issue costs
2017
£’m
380.0
100.0
0.1
480.1
(4.9)
475.2
2016
£’m
480.0
75.0
0.6
555.6
(7.9)
547.7
In April 2014, the Group entered into a Senior Facilities Agreement and drew £1,250.0m. At the end of May 2014, it used the
receipt of £550.0m from the Group’s flotation to reduce the outstanding principal to £700.0m.
The debt matures in April 2019, and interest is incurred at a variable rate of LIBOR plus 2.25%. The Group is required to comply
with a leverage covenant on a quarterly basis and had significant headroom against this covenant at 31 January 2017.
Under the facilities, the Group has access to a multi-currency revolving credit facility of £150.0m. During the year, the Group repaid
£100.0m (2016: £220.0m) of its Senior Facilities Agreement, and at 31 January 2017 had drawn £100.0m (2016: £75.0m) of its
£150.0m revolving credit facility. The Group incurs commitment fees on undrawn facilities and interest at a rate of LIBOR plus
2.25% on drawn facilities.
During the year, the Group charged £17.6m (2016: £21.8m) to the income statement in respect of fees and interest associated
with the Senior Facilities Agreement. In addition, interest charged to the income statement includes £1.0m (2016: £3.4m) relating
to interest on finance lease liabilities, net finance expense on pension schemes and other interest costs.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
27 Called up share capital
Allotted, called up and fully paid
As at 31 January 2015
Free shares allotted – 5 June 2015
As at 31 January 2016
Number
Nominal value
£
Ordinary shares
Value
£’m
1,110,705,405
7,300,000
1,118,005,405
0.01
0.01
0.01
11.1
0.1
11.2
As at 31 January 2017
1,118,005,405
0.01
11.2
On 29 May 2014, Saga plc was admitted to the London Stock Exchange. On the same date, the Group issued 13,408,108 shares
into the associated Employee Benefit Trust predominantly in respect of the share options issued to certain Directors and employees
on the same date (see note 29).
a. Bonus issue – free shares
As part of the IPO, an offer was made to customers and employees of the Group under which they would receive one free share
for every twenty shares purchased in the IPO and held continuously for a period of one year following flotation. On 5 June 2015,
7,300,000 shares were issued in respect of this bonus offer.
b. Employee Benefit Trust
The Employee Benefit Trust purchased 13,408,108 shares at their nominal value of £134,000 during the year ended 31 January
2015. There were no associated transaction costs.
During the year, employees exercised options over 3,154,051 (2016: 5,973,991; 2015: 539,320) of these shares which were
transferred from the Employee Benefit Trust into the direct ownership of the employee. The remaining 3,465,048 shares have
been treated as treasury shares at 31 January 2017.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
28 Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the
cost of capital.
For the purposes of the Group’s capital management, capital comprises total equity as shown on the consolidated statement of
financial position. The Group operates in a number of regulated markets and includes subsidiaries which are required to comply
with specific requirements in respect of capital or other resources.
The Group’s financial services businesses are regulated primarily by the Financial Services Commission (‘FSC’) in Gibraltar and by
the Financial Conduct Authority (‘FCA’) in the UK; and the capital requirements of its travel businesses are regulated by the Civil
Aviation Authority (‘CAA’) in the UK. It is the Group’s policy to comply with the requirements of these regulators in respect of capital
adequacy or other similar tests at all times.
No changes were made to the objectives, policies or processes for managing capital during the years ended 31 January 2017 or
31 January 2016, other than those driven from changes to the requirements of the various regulators, notably the European Union’s
Solvency II Directive for insurance companies.
The Group’s regulated underwriting business is based in the Gibraltar and regulated by the FSC. The underwriting business is
required to comply with various tests to ensure that it has a sufficient level of capitalisation. Under Solvency I, the FSC required the
underwriting business to hold solvency capital of at least twice the required minimum margin (‘RMM’). The Group has historically
monitored its compliance with this and other tests.
Solvency II incorporated a fundamental change to the capital adequacy regime for the European insurance industry and established
a revised set of capital requirements and risk management standards with the aim of increasing protection for policyholders.
The new regime became effective on 1 January 2016.
(The amounts set out in the following two paragraphs are unaudited)
The Group monitored its ability to comply with the requirements of Solvency II throughout the year to 31 January 2016 and received
approval from the FSC for the Undertaking of Specific Parameters route prior to the effective date. Under Solvency II AICL remained
well capitalised, and at 31 January 2016, available capital was £219.6m against a Solvency Capital Requirement of £128.8m giving
170% coverage. In the year to 31 January 2017, AICL continues to remain well capitalised, and at 31 January 2017, available
capital was £146.7m against a Solvency Capital Requirement of £102.9m giving 142.6% coverage.
The Group’s regulated insurance distribution businesses are based in the UK and regulated by the FCA. Due to the nature of
these businesses, the capital requirements are significantly less than the underwriting business but the Group is required to comply
with the Adequate Resources requirements of Threshold Condition 4 of the FCA Handbook. The Group undertakes a rigorous
assessment against the requirements of this Condition on an annual basis and, as a consequence of this, calculates and holds an
appropriate amount of capital in respect of these businesses. The Minimum Regulatory Capital requirement of these businesses at
31 January 2017 was £6.1m (2016: £6.1m).
The regulated travel businesses are required to comply with two main tests based on liquidity and leverage and are measured
against agreed covenants on the last day of each quarter in respect of these tests. The Group monitors its compliance with these
tests on a monthly basis including forward-looking compliance using budgets and forecasts. At 31 January 2017 and 31 January
2016, the travel businesses had good coverage against both covenants.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
29 Share-based payments
The Group has granted a number of different equity-based awards to employees and customers which it has determined to be
share-based payments:
a. Share options and free shares offer granted at the time of the IPO
• On 29 May 2014, share options over 13,132,410 shares were granted to certain Directors and employees with no exercise price
and no service or performance vesting conditions. There are no cash settlement alternatives.
• Eligible customers and employees who acquired their shares under the Customer or Employee Offers in the Prospectus received
one bonus share for every twenty shares they acquired and held continuously for one year to 29 May 2015. As these are bonus
shares, there was no exercise price and no cash settlement alternative.
b. Long-Term Incentive Plan (‘LTIP’) and Deferred Bonus Plan (‘DBP’)
• The LTIP is a discretionary executive share plan under which the Board may, within certain limits and subject to applicable
performance conditions, grant options over shares in Saga plc. These options are 50% linked to a non-market vesting condition,
EPS, and 50% linked to a market vesting condition, TSR.
− On 30 June 2014 and 2 December 2014, options over 4,015,508 shares were issued which vest and become exercisable
on the third anniversary of the grant date.
− On 30 June 2015, options over 2,879,089 shares were issued which vest and become exercisable on the third anniversary
of the grant date.
− On 9 June 2015, options over 332,541 shares were issued under the Deferred Bonus Plan (‘DBP’) to the Executive Directors
reflecting their deferred bonus in respect of 2014/15, which vest and become exercisable on the third anniversary of the grant
date. Following cessation of employment of S M Howard on 30 June 2015, the options allocated to him became exercisable
immediately.
− On 16 May 2016, options over 3,749,786 shares were issued which vest and become exercisable on the third anniversary
of the grant date.
− On 27 May 2016, options over 334,522 shares were issued under the DBP to the Executive Directors reflecting their deferred
bonus in respect of 2015/16, which vest and become exercisable on the third anniversary of the grant date.
− On 1 October 2016, options over 83,488 shares were issued which vest and become exercisable on the third anniversary
of the grant date.
c. Other share options
• On 29 May 2014, share options over 2,162,162 shares were issued to the Chief Executive Officer. Vesting occurs 25% on the
third anniversary of the IPO, 25% on the fourth anniversary of the IPO and 50% on the fifth anniversary of the IPO, subject to
continuing employment. The award will be equity settled and has no cash alternative. The exercise price of the share options
is £1.85.
• On 29 April 2015, options over 101,932 shares were issued to the Chief Financial Officer which vest in two equal tranches
on the first and second anniversary of his appointment, subject to continuing employment.
• On 2 December 2015, options over 99,552 shares were issued to the Chief Marketing Officer which vest on the second
anniversary of his appointment, subject to continuing employment.
d. Employee free shares
• On 8 July 2015, 398,774 shares were awarded to staff eligible on the anniversary of the IPO at £nil cost. These shares become
beneficially owned over a three year period from allocation subject to continuing employment.
• On 29 May 2016, 474,508 shares were awarded to eligible staff on the 2nd anniversary of the IPO and allocated at £nil cost;
these shares become beneficially owned over a three year period from allocation subject to continuing service.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
29 Share-based payments (continued)
The table below summarises the movements in the number of share options outstanding for the Group and their weighted average
exercise price:
At 1 February 2016
Granted
Forfeited
Exercised
At 31 January 2017
Exercise price
IPO Options
6,619,099
–
–
(3,154,051)
3,465,048
£nil
Exercisable at 31 January 2017
3,465,048
LTIP
5,504,179
3,833,274
(371,482)
–
8,965,971
DBP
256,093
334,522
–
–
590,615
Other options
2,363,646
–
–
(50,966)
2,312,680
Employee
free shares
374,210
474,508
(66,711)
(20,968)
761,039
Total
15,117,227
4,642,304
(438,193)
(3,225,985)
16,095,353
£nil
–
£nil
£1.73
£nil
£0.25
–
–
6,231
3,471,279
Average remaining contractual life
7.3 years
1.5 years
1.9 years
1.5 years
1.9 years
2.8 years
Average fair value at grant
£1.85
£2.01
£2.11
£1.86
£2.07
£1.96
The following information is relevant in the determination of the fair value of options granted during the year under the equity- and
cash-settled share based remuneration schemes operated by the Group.
Model used
Dividend yield (%)
Risk-free interest rate (%)
Expected life of share option
Weighted average share price (£)
Share price volatility
LTIP – EPS
tranche
Black-
Scholes
n/a
0.95%
3 years
£2.09
24.4%
LTIP – TSR
tranche
Monte-
Carlo
n/a
0.95%
3 years
£2.09
24.4%
Employee
free shares
Black-
Scholes
n/a
n/a
3 years
£2.01
n/a
As historical data for the Group’s share price is not available, the Group has estimated the Company’s share price volatility as an
average of the volatilities of its TSR comparator group over a historical period commensurate with the expected life of the award
immediately prior to the date of the grant.
For future valuations, at a date when sufficient Saga share price data becomes available, the Group intends to estimate the
Company volatility directly from this data.
The total amount charged to the income statement in the year ended 31 January 2017 is £4.7m (2016: £2.8m). This has been
charged to administrative and selling expenses £4.2m (2016: £2.5m) and non-trading items £0.5m (2016: £0.3m) (note 4b).
The Group did not enter into any share-based payment transactions with parties other than employees during the current period.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
30 Commitments and contingencies
a. Operating lease commitments – Group as lessee
The Group has entered into commercial leases on certain land and buildings and plant and machinery. There are no restrictions
placed upon the Group by entering into these leases.
Future minimum rentals payable under non-cancellable operating leases as at 31 January are as follows:
Within one year
Between one and five years
After five years
Land and buildings
Plant and machinery
2017
£’m
1.0
2.8
4.4
8.2
2016
£’m
1.0
3.3
4.8
9.1
2017
£’m
0.7
0.8
–
1.5
2016
£’m
0.8
1.6
–
2.4
b. Finance lease and hire purchase commitments
The Group has finance leases and hire purchase contracts for various items of plant and machinery. These leases have terms of
renewal and no purchase options. Renewals are at the option of the specific entity that holds the lease. Future minimum lease
payments under finance leases and hire purchase contracts together with the present values of the net minimum lease payments
are as follows:
Within one year
Between one and five years
Total minimum lease payments
Less amounts representing finance charge
Present value of minimum lease payments
2017
£’m
0.9
2.0
2.9
(0.3)
2.6
2016
£’m
0.5
1.7
2.2
(0.4)
1.8
c. Commitments
On 21 December 2015, the Group contracted with Meyer Werft GmbH & Co. KG to purchase a new cruise ship for delivery in
July 2019, with an option to purchase a second similar cruise ship for delivery in 2021. The new ship will replace one of the
Group’s existing two ships.
The first stage payment for the new ship was made in February 2016. Three similar stage payments will be made during the
construction period (24 months, 18 months, and 12 months prior to delivery) funded via cash resources of the Group. The
remaining element of the contract price is due on delivery of the ship, and the Group entered into appropriate financing for
this on 21 December 2015.
As at 31 January 2017, the capital amount contracted but not provided for in the financial statements in respect of the ship
amounted to £280.1m (2016: £280.1m).
The financing represents a 12 year fixed rate sterling loan, backed by an export credit guarantee. The loan value of approximately
£245m will be repaid in 24 broadly equal instalments, with the first payment 6 months after delivery. The effective interest rate on
the loan (including arrangement and commitment fees) is 4.29%.
On the date the finance was entered into, the Group purchased Euro currency forwards totalling £273.2m to lock the cost of the
ship. These have been designated as cash flow hedges and remain outstanding as at 31 January 2017 (note 17d).
The Group has an option to purchase a second ship for the same price within the contract; the option must be exercised by
21 December 2017. The Group may be released from this option at any time although should the option to purchase not be
exercised, a fee would become payable. The likelihood of incurring such a fee is considered remote.
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
30 Commitments and contingencies (continued)
d. Contingent liabilities
At 31 January 2017, the Group had secured £20.2m (2016: £31.8m) of financial bonds and other guarantees on a revolving credit
facility provided to Saga Mid Co Limited. If these bonds were called, the facility would be treated as drawn and recognised as a
liability on the Group’s balance sheet. The revolving credit facility is secured by a floating charge over the Group’s assets.
The Association of British Travel Agents regulates the Group’s UK tour operating business and requires the Group to put in place
bonds to provide customer protection. These bonds are included within the financial bonds described above.
On 17 February 2017, certain entities in the Group were served with legal proceedings by the broker who acted on behalf of the
ship yard for the committed purchase of the new cruise ship (see note 30c). The claimant has brought a claim alleging that these
Saga companies are liable to pay commission on the first ship, plus interest and legal costs and separately, commission on the
second ship should the option to purchase be exercised. The amount of the claim is up to €7 million, depending on whether the
option for the purchase of a second ship is exercised.
It is too early in the litigation process to evaluate Saga's position on liability and quantum. As such, no amounts have been provided
for this in the financial statements. Furthermore, in the event the claim is successful, the cost will be capitalised as part of assets in
the course of construction within property, plant and equipment.
31 Discontinued operations and assets held for sale
On 30 November 2015, the Group completed the sale of the local authority section of the healthcare business, Allied Healthcare.
The impact of the discontinued operation on the profit for the prior year was as follows:
Loss after tax, before amortisation of acquired intangibles
Gain on disposal of discontinued operations
The impact of the discontinued operation on the reported earnings per share was as follows:
Basic and diluted earnings per share from discontinued operations
The gain on disposal of Allied Healthcare was as follows:
Cash consideration received
Fair value of other consideration receivable
Pension scheme contribution
Net assets disposed (including cash of £2.5m)
Costs of disposal not previously provided for
2016
£’m
(7.9)
1.0
(6.9)
2016
(0.6p)
£’m
10.1
3.8
(9.2)
(3.1)
(0.6)
1.0
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
31 Discontinued operations and assets held for sale (continued)
The results of Allied Healthcare for the prior period were as follows:
Revenue
Cost of sales
Gross profit
Administrative and selling expenses
Non-trading items
Net finance expense on retirement benefit schemes
Loss before tax
Tax expense
Loss for the period from discontinued operations
Attributable to:
Equity holders of the parent
Non-controlling interest
The net cash flows of Allied Healthcare during the prior period to disposal were as follows:
Operating
Investing
Financing
Net cash outflow
2016
£’m
206.2
(149.2)
57.0
(58.4)
(6.4)
(0.4)
(8.2)
0.3
(7.9)
(8.2)
0.3
(7.9)
2016
£’m
(12.2)
0.1
8.4
(3.7)
32 Related party transactions
During the year ended 31 January 2016, the Saga Group agreed terms for the utilisation under the group relief rules of corporation
tax losses from Acromas SPC Co Limited and Acromas Mid Co Limited, indirect investees in the Group, at a cost of 50% of the
tax affected face value. Amounts payable by the Group in respect of the surrender of these tax losses of £7.6m were unpaid at
31 January 2016 (see note 9) and settled in February 2016.
G Williams, an independent Non-Executive Director of Saga plc, serves on the board of WNS (Holdings) Limited, the parent
company of WNS Global Services (UK Limited) and WNS Assistance Limited, both of which Acromas Insurance Company Limited
and PEC Services Limited, subsidiaries of Saga plc, traded with during the year. These subsidiaries of WNS (Holdings) Limited
provided claim handling management services to Acromas Insurance Company Limited and PEC Services Limited, and during the
year ended 31 January 2017 earned total fees of £3.6m (2016: £3.5m); further payments to these subsidiaries of WNS (Holdings)
Limited in respect of repair costs on claims handled totalled £37.2m (2016: £40.2m). As at 31 January 2017, amounts owing to
these subsidiaries of WNS (Holdings) Limited for fees and repair costs totalled £2.2m (2016: £1.5m).
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Financial statements
Financial statements
Notes to the consolidated financial statements continued
Notes to the consolidated financial statements continued
33 Subsidiaries
The entities listed below are subsidiaries of the Company or Group. All of the undertakings are wholly owned and included within
the consolidated financial statements. The registered office address for all entities registered in England is Enbrook Park, Sandgate,
Folkestone, Kent, CT20 3SE. The registered office address for all entities registered in Spain is Auxadi Contables & Consultores
S.A., Calle Nanclares de Oca 1B, 28022 Madrid, Spain. The registered office address of Acromas Insurance Company Limited is
57/63 Line Wall Road, Gibraltar.
Name
Acromas Financial Services Limited
ST&H Limited
Acromas Insurance Company Limited
Saga Cruises Limited
ST&H Transport Limited
Bennetts Biking Services Limited
CHMC Limited
PEC Services Limited
Saga Retirement Villages Limited
Destinology Limited
Direct Choice Insurance Services Limited
Enbrook Cruises Limited
MetroMail Limited
Premium Funding Limited
Saga Cruises IV Limited
Saga Cruises I Limited
Saga Healthcare Limited
Saga Mid Co Limited
Saga Publishing Limited
Saga Services Limited
Titan Transport Limited
Driveline Group Limited
CHMC Holdings Limited
Saga 200 Limited
Saga 300 Limited
Saga 400 Limited
Saga Establecimientos Hoteleros, S.L.
Saga Group Limited
Saga Holdings Limited
Saga Leisure Limited
Saga Overseas SL
Saga Properties Limited
ST&H Group Limited
Confident Services Limited
Country of registration
England
England
Gibraltar
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Spain
England
England
England
Spain
England
England
England
Nature of business
Regulated investment products
Tour operating
Insurance underwriting
Cruising
Tour operating
Insurance services
Motor accident management
Repairer of automotive vehicles
Marketing of retirement villages
Tour operating
Insurance services
Cruising
Mailing house
Insurance services
Cruising
Cruising
Provision of domiciliary care
Debt service provider
Publishing
Insurance services
Tour operating
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Dormant company
Dormant company
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
33 Subsidiaries (continued)
Name
Country Cousins (Horsham) Limited
Driveline Europe Limited
Driveline Travel Limited
Patricia White's Personal Home Care Limited
Saga 500 Limited
Saga Coach Holidays Limited
Saga Communications Limited
Saga Cruises BDF Limited
Saga Cruises II Limited
Saga Cruises III Limited
Saga Cruises V Limited
Saga Cruises VI Limited
Saga Flights.com Limited
Saga Holidays Limited
Saga Independent Living Limited
Saga Personal Finance Limited
Saga Property Management Limited
Saga Radio (North West) Limited
Saga Shipping Company Limited
Saga Tours Limited
Spirit Of Adventure Limited
Titan Aviation Limited
Titan Travel Holdings Limited
Titan Travel Limited
Country of registration
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Nature of business
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
34 Investment in joint ventures
During the current and prior year, the Group’s interests in joint ventures were:
a. Saga Investment Services Limited
The Group holds a 50% interest in Saga Investment Services Limited, a company registered in England and Wales. This is
accounted for using the equity method in the consolidated financial statements. The joint venture contributed a share of a loss
of £1.4m after tax (2016: £1.3m loss after tax). The investment has a carrying value at 31 January 2017 of £1.4m (2016: £1.6m).
b. Saga Law Limited
The Group held a 49% interest in Saga Law Limited, a company registered in England and Wales, up to 23 November 2015. This
was accounted for using the equity method in the consolidated financial statements. The joint venture contributed a share of profit
of £0.1m after tax in the year to 31 January 2016.
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Financial statements
Financial statements
Company financial statements of Saga Plc Balance Sheet
Company financial statements of Saga plc Balance Sheet
Non-current assets
Investment in subsidiaries
Current assets
Debtors
Creditors – amounts falling due within one year
Net current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss reserve
Other reserves
Total shareholders’ funds
Note
2017
£’m
2016
£’m
2
2,102.7
2,100.6
3
4
5
1.9
0.9
(206.2)
(204.3)
(114.1)
(113.2)
1,898.4
1,987.4
11.2
519.3
1,352.1
15.8
1,898.4
11.2
519.3
1,439.0
17.9
1,987.4
The Company has not presented its own profit and loss account as permitted by section 408(3) of the Companies Act 2006
(the ‘Act’). The loss included in the financial statements of the Company, determined in accordance with the Act, was £6.9m
(2016: £8.8m loss).
Company number: 08804263
Signed for and on behalf of the Board on 28 March 2017 by
L H L Batchelor
Group Chief Executive Officer
J S Hill
Group Chief Financial Officer
The notes on pages 168-170 form an integral part of these financial statements.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Financial statements
Financial statements
Company financial statements of Saga Plc Statement of changes in equity
Company financial statements of Saga plc Statement of changes in equity
At 31 January 2015
Loss for the financial year
Bonus shares issued
Dividends paid
Share-based payment charge
Exercise of share options
Issue of free shares (note 5)
At 31 January 2016
Loss for the financial year
Dividends
Share-based payment charge
Exercise of share options
At 31 January 2017
Called up
share
capital
£’m
11.1
–
0.1
–
–
–
–
11.2
–
–
–
–
11.2
Share
premium
account
£’m
519.4
–
(0.1)
–
–
–
–
519.3
–
–
–
–
519.3
Retained
earnings
£’m
1,494.3
(8.8)
–
(70.4)
–
11.0
12.9
1,439.0
(6.9)
(86.1)
–
6.1
1,352.1
Share-
based
payment
reserve
£’m
40.8
–
–
–
2.8
(12.8)
(12.9)
17.9
–
–
4.9
(7.0)
15.8
Total
equity
£’m
2,065.6
(8.8)
–
(70.4)
2.8
(1.8)
–
1,987.4
(6.9)
(86.1)
4.9
(0.9)
1,898.4
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Financial statements
Financial statements
Notes to the Company financial statements
Notes to the Company financial statements
1 Accounting policies
a. Accounting convention
These financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’
(‘FRS 101’) and in accordance with applicable accounting standards. The financial statements are prepared under the historical
cost convention, as modified by derivative financial assets and financial liabilities measured at fair value through profit or loss, and
in accordance with the Companies Act 2006.
The Company’s financial statements are presented in sterling and all values are rounded to the nearest million (£’m) except when
otherwise indicated.
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended
31 January 2017.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
a) the requirements of IFRS 7 ‘Financial Instruments: Disclosures’.
b) the requirements of paragraphs 91-99 of IFRS 13 ‘Fair Value Measurement’.
c) the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information
in respect of paragraph 79(a)(iv) of IAS 1.
d) the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B-D, 40A-D, 111 and 134-136 of IAS 1 ‘Presentation
of Financial Statements’.
e) the requirements of IAS 7 ‘Statement of Cash Flows’.
f) the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting policies, Changes in Accounting Estimates and Errors’.
g) the requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’.
h) the requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two
or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such
a member.
b. Investments
Investments in subsidiaries are accounted for at the lower of cost and net realisable value and reviewed for impairment when events
or changes in circumstances indicate the carrying value may not be recoverable.
c. Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that
it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused
tax credits and unused tax losses, can be utilised.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
1 Accounting policies (continued)
c. Deferred tax (continued)
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that
future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised
or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other
comprehensive income, in which case the deferred tax is dealt with in other comprehensive income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
d. Share-based payments
The Company provides benefits to employees (including Directors) of Saga plc and its subsidiary undertakings, in the form of
share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled
transactions). The cost of equity-settled transactions is measured by reference to the fair value on the grant date and is recognised
as an expense over the relevant vesting period, ending on the date on which the employee becomes fully entitled to the award.
Fair values of share-based payment transactions are calculated using Black-Scholes modelling techniques. In valuing equity-settled
transactions, assessment is made of any vesting conditions to categorise these into market performance conditions, non-market
performance conditions and service conditions.
Where the equity-settled transactions have market performance conditions (that is, performance which is directly or indirectly linked
to the share price), the fair value of the award is assessed at the time of grant and is not changed, regardless of the actual level of
vesting achieved, except where the employee ceases to be employed prior to the vesting date.
For service conditions and non-market performance conditions, the fair value of the award is assessed at the time of grant and is
reassessed at each reporting date to reflect updated expectations for the level of vesting. No expense is recognised for awards that
ultimately do not vest.
At each reporting date prior to vesting, the cumulative expense is calculated, representing the extent to which the vesting period
has expired and, in the case of non-market conditions, the best estimate of the number of equity instruments that will ultimately vest
or, in the case of instruments subject to market conditions, the fair value on grant adjusted only for leavers. The movement in the
cumulative expense since the previous reporting date is recognised in the income statement, with the corresponding increase in
share-based payments reserve.
Upon vesting of an equity instrument, the cumulative cost in the share-based payments reserve is reclassified to reserves.
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Financial statements
Financial statements
Notes to the Company financial statements continued
Notes to the Company financial statements continued
2 Investment in subsidiaries
Cost
At 31 January 2015
Capital contributions arising from share-based payments
At 31 January 2016
Capital contributions arising from share-based payments
At 31 January 2017
Amounts provided for
At 31 January 2015
Amounts provided in the year
At 31 January 2016
Amounts provided in the year
At 31 January 2017
Net book value
At 31 January 2017
At 31 January 2016
See note 33 to the consolidated financial statements for a list of the Company’s investments.
3 Debtors
Deferred tax asset
Other debtors
All amounts above are due in less than one year.
4 Creditors – amounts falling due in less than one year
£’m
4,125.6
1.4
4,127.0
2.1
4,129.1
2,026.4
–
2,026.4
–
2,026.4
2,102.7
2,102.7
2017
£'m
0.7
1.2
1.9
2016
£'m
0.3
0.6
0.9
2017
£'m
204.4
1.8
206.2
2016
£'m
109.7
4.4
114.1
Amounts owed to Group undertakings
Other creditors
5 Called up share capital
Allotted, called up and fully paid
At 31 January 2015
Free shares allotted – 5 June 2015
As at 31 January 2016
As at 31 January 2017
Number
1,110,705,405
7,300,000
1,118,005,405
1,118,005,405
Ordinary shares
Nominal value
£
0.01
0.01
0.01
0.01
Value
£’m
11.1
0.1
11.2
11.2
On 29 May 2014, Saga plc was admitted to the London Stock Exchange. As part of the IPO, an offer was made to customers
and employees of the Group under which they would receive one free share for every twenty shares purchased in the IPO and
held continuously for a period of one year following flotation. On 5 June 2015, 7,300,000 shares were issued in respect of this
bonus offer.
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ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC
Additional information
Shareholder Information
Financial calendar
2017 Annual General Meeting
– 22 June 2017
Final dividend dates
Announcement date – 29 March 2017
Ex-dividend date – 11 May 2017
Record date – 12 May 2017
Last day for DRIP elections – 5 June 2017
Payment date – 30 June 2017
Shareholder information online
The Company will publish annual
reports, notices of shareholder meetings
and other documents which we are
required to send to shareholders
(‘shareholder information’) on a website.
Consenting shareholders will be notified
either by post or email if preferred
each time the Company publishes
shareholder information. This allows us
to increase speed of communication,
reduce our impact on the environment
and keep costs to a minimum.
You can change your communication
preference via the Saga Shareholder
Services Portal www.sagashareholder.
co.uk or by contacting Saga Shareholder
Services. In order to register on the
portal you require your 11-digit investor
code (‘IVC’). You can find your IVC on
communications such as your share
certificate. The Saga Shareholder
Services Portal allows you to manage
your shareholding easily and securely
online. You can also change your
personal details, view your holding and
get an indicative valuation, view dividend
information, register proxy voting
instructions, reinvest your dividends to
buy additional Saga plc shares, buy and
sell shares and register bank details so
that dividends can be paid directly to
your account.
Shareholder fraud
Shareholders are advised to be wary
of any unsolicited advice or offers,
whether over the telephone, through
the post or by email. If any such
unsolicited communication is received
please check the company or person
contacting you is properly authorised by
the Financial Conduct Authority (‘FCA’)
before getting involved. Fraudsters use
persuasive and high-pressure tactics
to lure investors into scams. They may
offer to sell shares that turn out to be
worthless or non-existent, or to buy
shares at an inflated price in return for an
upfront payment. While high profits are
promised, if you buy or sell shares in this
way you may potentially lose your money.
5,000 people contact the FCA about
share fraud each year, with victims
losing an average of £20,000. For more
information, or if you are approached by
fraudsters, please visit the FCA website
www.fca.org.uk/consumers/scams,
where you can report and find out more
about investment scams. You can also
call the FCA Consumer Helpline on 0800
111 6768. If you have already paid money
to share fraudsters you should contact
Action Fraud on 0300 123 2040.
Advisers
Joint Corporate Broker and
Financial Adviser
J.P. Morgan Cazenove
25 Bank St
Canary Wharf
London E14 5JP
Joint Corporate Broker
Numis Securities Ltd.
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Joint Financial Adviser
Goldman Sachs Intl.
Peterborough Court
133 Fleet Street
London EC4A 2BB
Media relations advisers
MHP Communications
6 Agar Street
London WC2N 4HN
Independent auditors
Ernst & Young LLP
(resigning at the Annual General Meeting)
1 More London Riverside
London SE1 2AF
KPMG LLP (to be appointed at the
Annual General Meeting)
15 Canada Square
London E14 5GL
Legal advisers
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EG4Y 1HT
Information for investors
Information for investors is provided
on the internet as part of the Group’s
corporate website which can be found
at www.corporate.saga.co.uk.
Registrars
Capita Asset Services
For shareholder enquiries contact:
Saga Shareholder Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Shareholder Helpline: 0800 015 5429 –
calls to Freephone numbers will vary by
provider. If you are outside the United
Kingdom call +44 (0)333 300 1581 –
calls outside the United Kingdom will be
charged at the applicable international
rate. Lines are open are open 9am to
5.30pm, Monday to Friday, excluding
public holidays in England and Wales.
enquiries@sagashareholder.co.uk
Registered office
Saga plc
Enbrook Park
Sandgate
Folkestone
Kent CT20 3SE
Corporate websites
Information made available on the
Group’s websites does not, and is not
intended to, form part of these Results.
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Strategic reportGovernanceFinancial statementsANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Glossary
ABC1 households social grading
based on a system of demographic
classification used in the UK, as
defined by Experian Mosaic data
Accident year the financial year
in which an insurance loss occurs
Core policy an insurance policy that is
actively marketed and sold on its own
Cruise passenger days the total
number of days passengers have
travelled on a ship, or ships, in a
given period
Add-on an insurance policy that
is actively marketed and sold as
an addition to a core policy
Cruise passengers the number of
passengers that have travelled on
a Saga cruise in a given period
Customer spend Customer spend
represents the total amount that
customers spent on products provided
by the Saga group of companies,
including gross written premiums,
ancillary income and Insurance Premium
Tax for all of the core policies and
add-ons sold in the period
DBP Deferred Bonus Plan
Discontinued operations operations
divested or those that have been
classified as held for sale whose trading
activities relate to a separate line of
business or geographical area
Debt ratio (Leverage) the ratio of net
debt to Trading EBITDA
DTRs (Disclosure and Transparency
Rules) rules published by the UK
Financial Conduct Authority relating
to the disclosure of information by
a company listed in the UK
Earned premium insurance premiums
that are recognised in the income
statement over the period of cover to
which the premiums relate, deferred
on a 365ths basis
Earnings per share from continuing
operations (basic) profit after tax from
continuing operations attributable to
ordinary shareholders divided by the
weighted average number of ordinary
shares outstanding during the period
Expense ratio the ratio of expenses
Incurred to underwrite insurance
(numerator) to the revenue earned by
AICL (denominator) in a given period
AGM Annual General Meeting
AICL Acromas Insurance Company
Limited
Available cash cash held by
subsidiaries within the Group that is not
subject to regulatory restrictions, net of
any overdrafts held by those subsidiaries
Available operating cash flow net
cash flow from operating activities after
capital expenditure but before tax and
interest paid and non-trading items,
which is available to be used by the
Group as it chooses and is not subject
to regulatory restriction
Board Saga plc Board of Directors
Claims frequency the number of
claims incurred divided by the number
of policies earned in a given period
Claims reserves accounting provisions
that have been set to meet outstanding
insurance claims, IBNR and associated
claims handling costs
Code the UK Corporate Governance
Code published by the UK Financial
Reporting Council setting out guidance
in the form of principles and provisions
to address the principal aspects of
corporate governance
Combined operating ratio the ratio
of the claims costs and expenses
incurred to underwrite insurance
(numerator) to the revenue earned by
AICL (denominator) in a given period.
Can otherwise be calculated as the
sum of the loss ratio and expense ratio
Companies Act the UK Companies Act
2006, as amended from time to time
Company Saga plc
Continuing operations operations that
are not classified as discontinued
172
GHG Protocol a global standard for
how to measure, manage, and report
greenhouse gas emissions
GWP (Gross written premiums) the
total premium charged to customers for
a core insurance product, excluding
Insurance Premium Tax but before the
deduction of any outward reinsurance
premiums, measured with reference
to the cover start date of the policy
Group the Saga plc group
Holidays passengers the number of
passengers that have travelled on a
Saga, Titan or Destinology holiday in
a given period
IASB International Accounting
Standards Board
IBNR (incurred but not reported)
a claims reserve provided to meet the
estimated cost of claims that have
occured, but have not yet been
reported to the insurer
IFRS International Financial Reporting
Standards
IPO (Initial Public Offering) the first
sale of shares by a previously unlisted
company to investors on a securities
exchange
Leverage ratio the ratio of net debt
to Trading EBITDA
LIBOR London inter-bank offered rate
Load factor in relation to cruise ships,
the number of passenger days travelled
divided by the maximum number of
passenger days that could be travelled,
in a given period
Loss ratio a ratio of the claims costs
(numerator) to the net earned premium
(denominator) in a given period
LR (Listing Rules) a set of mandatory
regulations set from by the UK Financial
Conduct Authority and applicable to a
company listed in the UK
FCA Financial Conduct Authority
LTIP Long Term Incentive Plan
Financial Conduct Authority (FCA)
the independent UK body that regulates
the financial services industry, which
includes general insurance
Malus an arrangement that permits
the forfeiture of unvested remuneration
awards, in circumstances the Company
considers appropriate
ANNUAL REPORT AND ACCOUNTS 2017 SAGA PLC Glossary continued
Mosaic classifications Mosaic
is a consumer classification system,
owned by Experian, that classifies
UK households into 15 main social-
economic groups, each of which have
specific consumer and societal trends
Net claims the cost of claims incurred in
the period less any claims costs recovered
under reinsurance contracts and after the
release of any claims reserves
Net debt bank debt and borrowings,
excluding any overdrafts held by
restricted trading subsidiaries, net
of available cash
Net earned premium earned premium
net of any outward earned reinsurance
premium paid
Net interest expense finance costs
less finance income
Ogden discount rate the discount rate
set by the relevant government bodies,
the Lord Chancellor and Scottish
Ministers, and used to calculate lump
sum awards in bodily injury cases
Operating margin is a measurement
of the proportion of revenue which is left
over after paying for all business costs.
PBT profit before tax
PMI private medical insurance
Policies sold the number of core
and add-on insurance policies sold to
customers in a given period, measured
by reference to the cover start date of
the policy
Reinsurance contractual arrangements
where an insurer transfers part or all of
the insurance risk written to another
insurer, in exchange for a share of the
customer premium
RMM (required minimum margin) a
measure used to assess the minimum
level of solvency capital an insurance
underwriter must retain under Solvency I
RPI Retail Price Index
Saga Way the internal framework that
guides the behaviours of our employees
SCR Solvency capital requirement
as calculated under Solvency II rules
SIP Share Incentive Plan
Solvency capital/Solvency II
insurance regulations designed to
harmonise European Union insurance
regulation. Primarily this concerns
the amount of capital that European
insurance companies must hold under
a measure of capital and risk
tCO2e tonnes of carbon dioxide
equivalent, which is a measure that
allows comparison of the emissions of
other greenhouse gases relative to one
unit of CO2
Trading EBITDA earnings before
interest payable, tax, depreciation and
amortisation, non-trading items and fair
value gains and losses on derivative
financial instruments
Trading profit Trading EBITDA less
depreciation and amortisation, excluding
amortisation of acquired intangibles
TSR (total shareholder return)
the theoretical growth in value of a
shareholding over a period, by reference
to the beginning and ending share price,
and assuming that dividends, including
special dividends, are reinvested to
purchase additional units of the equity
Unearned premium an amount of
insurance premium that has been
written but not yet earned
Design, consultancy and production by Luminous
www.luminous.co.uk
Saga plc
Enbrook Park
Sandgate
Folkestone
Kent
CT20 3SE
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